Privatization of unemployment insurance: A concept for Germany

The authors develop a system of private unemployment insurance that gives workers and employers equal incentives to reduce unemployment. The transition to this incentive-compatible system will not put workers or employers in a worse position than before. For workers, a model is designed to determine the individual risk and the individual premiums based on alternative benefits provided by private unemployment insurance. For the employer side, a modified form of the American "experience rating" is proposed: the level of the employer's contribution is linked to the discharge behavior in order to provide employment incentives via feedback effects. Simulation analyzes for Germany show that the system developed in the book will help to reduce unemployment in the long term and reduce the costs of unemployment insurance and thus the insurance premiums.