UNEMPLOYMENT-INSURANCE AND MARKET-STRUCTURE

This paper examines the impact of unemployment insurance (UI) on employment and unemployment in an industry in which the prices can vary due to some market power. Some non-conventional results are obtained. It is shown that, if there is free entry and exit, average industrial employment may be a decreasing function of the experience rating because the number of firms in the industry is itself a decreasing function of this parameter. This contradicts the conventional view which was arrived at using models of a perfectly competitive industry with no entry, and according to which employment should be an increasing function of the experience rating. The general conclusion is that for industries with different degrees of market power, the same UI scheme has different impacts on employment and unemployment.