In this paper we emphasise the variability of the unemployment benefit system as a measure of benefit uncertainty and analyse its effects on the labour market. Higher unemployment benefits gives stronger power to the union in collective bargaining over wages. We suppose that a higher uncertainty of the insurance system determined an improvement in the working of the UK labour market and reduced union strength in the 1980s. We investigate these issues with a theoretical stochastic union model of the Kidd-Oswald-Jones’ type, randomising the benefit variable.
GAETA – Wage and Employment in a Stochastic Model of Union Behaviour