The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule

This paper analyses the effects of unemployment insurance benefits on unemployment exits and subsequent labour market outcomes. We exploit a piecewise linear relationship between the previous wage and benefits in Finland to identify the causal effects of the benefit level by using a regression kink design. Although we only find weak evidence of an effect on the time to the next job, higher benefits decrease the time spent in part-time unemployment and thus result in more full-time unemployment. The re-employment probability and post-unemployment wage are also negatively affected. The results for the duration of the first post-unemployment job are not conclusive, but in total both employment and earnings in the two years following the beginning of the unemployment spell decrease with higher benefits.     

Replacement rates and labour market behaviour

This paper studies how the replacement rate, defined as the ratio of disposable income when unemployed to expected disposable income if beginning to work, affects individuals’ transition rate from unemployment. Linked register data, representing a local Finnish labour market in 1996, are analysed with piece-wise constant exponential hazard models. Results suggest that the effect of the replacement rate and, thus, of “unemployment traps”, is fairly modest. It does not seem to change with time spent unemployed. The impact on the transition rate into employment is lower than on the transition rate out of the labour force. Unemployment insurance recipients are found to be less sensitive to changes in the replacement rate than are unemployment assistance recipients.     

The transition from school to work in 1979–1987 in the Netherlands*

We analyze the early labour market experiences of the cohort born in the Netherlands around 1965. Some of them, who left school early, entered the labour market just before the economic crisis of the eighties; the others entered the labour market during the period of high unemployment. We concentrate on the time-period between school-leaving and entering the first job. The individual differences in these initial durations of non-employment are analyzed by estimating hazard functions.     

Employment effects of extended geographic scope in job search

This paper uses a unique possibility to link unemployed individuals' stated willingness to move for work with administrative data, giving us the possibility to analyse the effects of individual willingness-to-move on labour market outcome. Those with extended geographic job search area have a higher probability of finding a job. However, the greatest effect is found on the local labour market, indicating that it is not the extended geographic scope per se that increases the likelihood of escaping unemployment, but differences in unobservable characteristics between those who use an extended search area and those who do not.     

Do Low‐Wage Workers React Less to Longer Unemployment Benefits? Quasi‐Experimental Evidence*

The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi‐experimental setting generated by an increase in the benefits entitlement period. The results suggest a hump‐shape response of unemployment duration over the one‐year pre‐unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low‐wage workers.     

Exits from unemployment: Recall or new job

This paper studies transitions out of unemployment in Spain distinguishing between recall to the same employer and reemployment in a new job. We use a large sample of newly unemployed workers obtained from Social Security records for Spain. These data contain information about each individual's employer identity before and after the unemployment spell. A discrete-time duration model with competing risks of exits serves us to investigate the factors that influence the probabilities of leaving unemployment to return to the same employer or to find a new job with a different employer. We find that taking into account the route to exit unemployment helps us to understand the influence of individual and job characteristics on the hazard rate. Moreover, the recall hazard rate exhibits no duration dependence, whereas the new-job hazard rate presents positive duration dependence.     

Semi-Nonparametric Estimation of an Equilibrium Search Model

We specify and estimate an equilibrium job search model with productivity differences across labour market segments. The model allows for two types of unemployment: frictional unemployment due to search frictions and structural unemployment due to wage floors. Wage floors exist because of high unemployment benefits or binding minimum wages. The productivity distribution is estimated semi-nonparametrically along the lines of Gallant-Nychka, using Hermite series approximation. We decompose the total unemployment rate and we examine the effects of changes in the minimum wage.     

Job separation in a non‐stationary search model: a structural estimation to evaluate alternative unemployment insurance systems

This paper considers a job search model in which the environment is not constant throughout the unemployment spell and where jobs do not last for ever. In this situation, reservation wages can be lower than they would be in a model without consideration of such separations, but they can initially be higher precisely because of the non‐constant environment. The model is estimated structurally by using Spanish data for the period 1985–1996. The main finding is that, after controlling for unobserved heterogeneity, the unemployment hazard rate is almost flat during the first six months. However, after this duration, the highly decreasing job offer arrival rate comes to be the only significant factor, given that acceptance probabilities become equal to one. The estimated parameters are used to evaluate different unemployment insurance designs. We conclude that a non‐monotonic pattern in unemployment benefits, joint with a tax paid by workers and based on unemployment duration, makes this duration 13.2% lower than it currently is in Spain. Copyright © 2006 John Wiley & Sons, Ltd.     

Unemployment duration and the interactions between unemployment insurance and social assistance

Existing studies suggest that reforms that reduce the generosity of the unemployment benefits should lower unemployment. Despite the large number of such reforms implemented in Europe in the past decades, evidence from various data sources shows very little correlation with the evolution of unemployment. This paper suggests that the scant success of these labour market reforms can be explained by the interactions between unemployment insurance and other social assistance programmes. Evidence from the European Community Household Panel shows that recipients of unemployment insurance who are also eligible for other welfare schemes are indeed less sensitive to changes in the level and the duration of their benefits.     

The effect of disability pension incentives on early retirement decisions

I investigate the incentive effects of disability pensions on disability retirement entry as a special type of early retirement. The implicit tax rate on further work is included as a forward looking incentive measure. A substantial change of the disability pension legislation caused exogenous variation in disability benefits in Germany in 2001 and is used to obtain estimates of individual's responses to financial incentives. Benefit levels appear to have no effect on the labour market behaviour. At the same time, there is a sizable and significant disincentive effect of implicit taxes on labour market income, indicating that alleviating such disincentives would likely increase labour force participation. Since the response to financial incentives occurs mainly among those in good health, such a policy might on the other hand imperil the aim of providing insurance against a health‐induced loss of one's working capacity.     

Spell durations with long unemployment insurance periods

This paper uses data from a natural experiment to investigate the potential incentive effect of a fixed unemployment insurance period. We compare two large groups of Norwegian unemployed persons who registered as unemployed in 1990 and 1991. The last group was affected by a rule change that in practice extended the length of unemployment benefits to more than 3 years. Our data are taken from official records, and we construct unemployment durations by combining information from the unemployment registers with employers' records. We use a proportional hazard model with a flexible baseline. The results suggest that the main effect of benefits running out is to make people drop out of the unemployment register. We find neither clear evidence that the hazard into employment increased when the end of benefits approached in the pre-liberalisation group, nor that behaviour in this part of the spells changed after the reform. On the other hand, our results suggest that the reform had an all over negative effect on the employment hazard.     

What does it take to be (counted as) unemployed? The case of Spain

This paper analyzes the effects of the new European Commission regulation 1897/2000 which establishes a new definition of unemployment. It first examines the conditions that unemployed people have to meet in order to be deleted from unemployment by the new notion, to turn then to an application to the case of Spain, the first country where the new regulation was implemented. The paper then turns to study whether the very nature of the regulation is warranted, i.e. whether it is appropriate to delete passive job seekers from unemployment, on the basis of their labour market behaviour. The conclusion is that the new regulation does not capture the real complexities of the labour market.     

Differential effects of active labour market programs for the unemployed

The differential performance of six Swedish active labour market programs for the unemployed is investigated in terms of short- and long-term employment probability and un-employment-benefit dependency. Both relative to one another and compared to more intense job search, the central finding is that the more similar to a regular job, the more effective a program is for its participants. Employment subsidies perform best by far, followed by trainee replacement and, by a long stretch, labour market training. Relief work and two types of work practice schemes appear by contrast to be mainly used to re-qualify for unemployment benefits.     

失业保险,道德风险与激励机制研究

在简化的Lucas—Prescott（1974）的模型基础上，本文说明了失业保险中失业保险金对搜寻努力存在着负效用，并分别就无失业保险、完全失业保险、不完全失业保险、失业保险金过低等四种情况，分析了道德风险的产生机制以及克服道德风险的激励机制。针对失业保险中的道德风险问题，本文提出了相应的政策建议：失业期内单调下降的失业保险金支付方法，征收失业保险税或奖励再就业，对失业工人的搜寻努力进行监督和惩罚，执行劳动福利计划等。     

Labor Market Dynamics: A Time‐Varying Analysis

This paper studies how key labour market stylized facts and the responses of labour market variables to technology shocks vary over the US postwar period. It uses a benchmark dynamic, stochastic, general equilibrium model enriched with labour market frictions and investment‐specific technological progress that enables a novel identification scheme based on sign restrictions on a SVAR with time‐varying coefficients and stochastic volatility. Key findings are: (i) the volatility in job finding and separation rates has declined over time, while their correlation varies across time; (ii) the job finding rate plays an important role for unemployment, and the two series are strongly negatively correlated over the sample period; (iii) the magnitude of the response of labour market variables to technology shocks varies across the sample period.     

Duration of UI periods and the perceived threat effect from labour market programmes

In this paper, we study whether the prospect of compulsory programme participation motivates individuals to leave the unemployment insurance (UI) system prior to participation. In some systems, individuals may experience very different risks of enrolment even when they face identical formal rules. If individuals learn that programme enrolment does not deterministically follow regulations, estimated effects based solely on institutional regulations may be downward biased. This means that the true effect of potential enrolment may be underestimated. We analyse data from the Danish labour market which includes information on a series of reforms that have enforced programme participation in return for unemployment benefit entitlement. First, we find that unemployed individuals do indeed have different risk of compulsory enrolment even when regulations indicate that the risk should be identical. Second, we find that individuals do react strongly and significantly to the prospect of programme enrolment. However, since individuals experience different risks of programme enrolment, the resulting response observed in individuals' hazard out of unemployment is also different as the unemployment spell progresses.     

Do Labour Market Programmes Speed up the Return to Work?*

We evaluate the impact of labour market programmes on unemployment durations in Norway, by means of a distribution‐free mixed proportional competing risks hazard rate model. We find that programme participation, once completed, improves employment prospects, but that there is often an opportunity cost in the form of a lock‐in effect during participation. The average net effect of programme participation on the length of the job search period is found to be around zero. For participants with poor employment prospects, the favourable post‐programme effects outweigh the negative lock‐in effects.     

Attrition in longitudinal panel data and the empirical analysis of dynamic labour market behaviour

In the empirical analysis of unemployment durations and job durations, it is generally assumed that the stochastic processes underlying labour market behaviour and the behaviour concerning participation in a panel survey are independent. However, there are reasons to believe that the probability of dropping out of the panel is related to the rate at which a (different) job is found. If there is such a relation, and if it is ignored, then the estimator of the rate at which individuals become employed or change jobs will generally be inconsistent. In this paper we analyse the relation between the duration spent in a particular labour market state and the duration of panel survey participation, by explicitly modelling and estimating the joint distribution of both durations. The emphasis will be on models allowing for stochastically related unobserved determinants of both types of duration. We estimate models both for unemployment durations and for job durations.     

Benefit shifting: The case of sickness insurance for the unemployed

This study describes the probability of transition from unemployment with unemployment insurance (UI) to sickness insurance (SI), using a proportional hazard duration model and a large register-based dataset. The combination of limited UI duration and the fact that SI rights do not depend on remaining UI, creates an incentive to use SI to effectively extend UI. The separate effects of elapsed unemployment duration and of UI duration on hazard rates are identified through a reform of the UI system. The estimated hazard rate for transition from unemployment to SI increases sharply the last months before UI exhaustion. The spikes are larger for diagnosis for mental illness, and vary across individuals, but are present for all groups and all diagnoses.     

Unemployment insurance and subsequent job duration: job matching versus unobserved heterogeneity

The relationship between Unemployment Insurance (UI) benefit duration, unemployment duration and subsequent job duration is investigated using a multi‐state duration model with state specific unobserved heterogeneity. I examine two potential explanations for the negative correlation between unemployment and job spell durations; UI benefits increase job matching quality (the ‘Matching’ effect) versus unobserved heterogeneity (‘Adverse Selection’). The Matching effect is found to be weak. Although new jobs accepted within 5 weeks of benefit termination seem to have a higher dissolution rate, the negative correlation between unemployment and job duration is mostly explained by unobserved heterogeneity. Various simulations indicate that increasing the maximum benefit duration by one week will raise expected unemployment duration by 1.0 to 1.5 days but will raise expected job duration by 0.5 to 0.8 day only. Copyright © 2001 John Wiley & Sons, Ltd.