Unemployment Insurance and Cyclical Growth

Abstract

As Goodwin’s famous model¹⁾ is built on a small set of rigorous assumptions it provides a large field for generalizations. Although quite a lot of different contributions have been made already, we have not seen any attempt to account, in its framework, for elements of the “welfare state” so far.²⁾ From a theoretical point of view the incorporation into the model of unemployment benefits schemes seems to us highly relevant, because it allows to discuss the following questions: Will such schemes affect the cyclical characteristics of the model significantly or even abolish cyclical features? What difference will it make in which way those payments are financed and to which degree the burden of providing the necessary funds is divided between labour and capital? Will the payment of unemployment benefits affect the bargaining power of workers? What effects can be expected from attempts to “correct” the burden of contributions via wage negotiations? Can we allow for deficits and surplusses arising necessarily with certain assumptions about institutional rules? Although this list of questions is by no means complete, we cannot even fully work out the answers to them in the present article.