Unemployment Insurance and Union Wage Setting.

The authors examine alternative systems of financing unemployment insurance benefits in an economy with wage-sett ing unions, where, as in some Nordic countries, each union runs its o wn unemployment insurance system. It is shown that a higher lump-sum grant to the union's unemployment insurance fund increases employment , whereas higher marginal subsidies have ambiguous effects. An unempl oyment insurance tax on wages has no effect on employment, whereas an unemployment insurance tax on profits unambiguously increases employ ment. The authors also analyze a case where wages are set at the firm level and premiums at the industry level. Copyright 1988 by The editors of the Scandinavian Journal of Economics.