Unemployment Compensation Finance and Efficiency Wages.

Abstract

This article examines the effects of unemployment compensation finance in a labor market in which firms pay efficiency wages. Two self-financing unemployment compensation systems are compared: one in which benefits are financed by a proportional payroll tax and another in which experience rating is introduced by taxing firms in proportion to their separations. The authors find that experience rating leads to less unemployment, less shirking, and higher output. Copyright 1999 by University of Chicago Press.