The Influence of Unemployment Benefits on Unemployment Duration: Evidence from Spain

ABSTRACT: This paper analyses the duration of unemployment spells and the possible incidence of unemployment insurance on job search behaviour and voluntary duration of unemployment in Spain. To do so, a longitudinal data set containing information on unemployment recipients during the period 1987-93 is used. Hazard rates and survival profiles are constructed for the cohorts of unemployed workers entering the benefit system at different points in time, and a logit model of the probability of leaving the system before exhausting entitlement period is presented. The results do not support the view that the unemployed tend to intensify their job search when benefits are near exhaustion.     

失业保险给付期限差异下的失业持续时间研究

本文对享受不同失业保险给付期限的失业者的失业持续时间差异进行了实证研究。根据工作搜寻理论,应用存活分析方法建立了含有失业保险给付期限因素的失业持续时间模型,并对青岛市失业者登记数据进行了实证研究。结果表明:享受失业保险者的失业持续时间明显长于不享受失业保险者的失业持续时间,在失业保险给付额度相同的条件下,失业保险给付期限与失业持续时间成同向变动关系。     

UNEMPLOYMENT INSURANCE IN EUROPE: UNEMPLOYMENT DURATION AND SUBSEQUENT EMPLOYMENT STABILITY

This paper provides evidence on the effect of unemployment insurance on unemployment and subsequent employment duration in Europe using individual data from the European Community Household Panel. Country‐specific estimates based on a multivariate discrete‐time duration model, which takes into account dynamic selection issues and the endogeneity of benefit receipt, suggest that although receiving benefits has an adverse effect in the sense of increasing unemployment duration, there is also a positive effect associated with the increased duration of subsequent employment. This beneficial effect of unemployment insurance on employment stability is pronounced in countries with relatively generous benefit systems, and for recipients who have remained unemployed for at least six months. These findings are in line with theories that suggest a matching effect of unemployment insurance. (JEL: J64, J65, C41)     

Unemployment Insurance and the Timing of Layoffs and Recalls

Abstract. This note provides the motivation to fill a gap in the empirical literature by showing that the optimal firm response to workers’ job search behaviour (Mortensen, Industrial and Labor Relations Review 30: 505–517, 1977) is to lay off those workers with high unemployment insurance and recall workers as they approach expiry of their benefits.     

Do Benefit Hikes Damage Job Finding? Evidence from Swedish Unemployment Insurance Reforms

Abstract. In 2001 and 2002, Sweden introduced several unemployment insurance reforms. A major innovation in the first reform was the introduction of a two‐tiered benefit structure for some unemployed individuals. This system involved supplementary compensation during the first 20 weeks of unemployment. The 2002 reform retained the two‐tiered benefit structure but involved also substantial benefit hikes for spells exceeding 20 weeks. This paper examines how these reforms affected transitions from unemployment to employment. We take advantage of the fact that the reforms had quasi‐experimental features where the ‘treatments’ differed considerably among unemployed individuals. We find that the reforms had strikingly different effects on job finding among men and women. The two reforms in conjunction are estimated to have increased the expected duration of unemployment among men but to have decreased the duration of unemployment among women. The overall effect on the duration of unemployment is not statistically different from zero. However, the reforms reduced job finding among men who remained unemployed for more than 20 weeks.     

The Unemployed Individual's Marginal Willingness to Pay for the Remaining Entitlement Period

Abstract. This paper introduces a method of estimating the unemployed individual's marginal willingness to pay for the remaining entitlement period by application of search theory. It is demonstrated that search theory implies that the unemployed individual's marginal willingness to pay for the remaining entitlement period must be less than the value of the unemployment benefit. When benefits expire, though, the willingness to pay for an additional period must be equal to the benefit received during that period. The empirical relevance of this method is shown by re‐interpreting the studies of Meyer (Econometrica 58: 757–782, 1990) and Katz and Meyer (Journal of Public Economics 41: 45–72, 1990).     

The Effect of Unemployment Insurance Generosity on Unemployment Duration and Labor Market Transitions

This paper examines the impact of unemployment insurance (UI) benefit generosity on labor market transitions in Turkey from 2002 to 2012. Using a unique administrative dataset, I take advantage of a sharp discontinuity in treatment assignment at 900‐paid‐premium‐days to identify the impact of generosity on the outcome variables. I find that unemployment benefit duration is increased by approximately 0.07 weeks per additional week of UI. However, more generous benefits lead to lower probabilities of transition to employment and the impact is greater compared to developed countries. In addition, workers who are entitled to longer UI periods have lower probabilities of cheating the system and rejecting the services of the Turkish Employment Agency.     

UNEMPLOYMENT INSURANCE AND CULTURAL TRANSMISSION: THEORY AND APPLICATION TO EUROPEAN UNEMPLOYMENT

This paper emphasizes the two‐way causality between the provision of unemployment insurance and the cultural transmission of civicness. The returns to being uncivic are increasing in the generosity of unemployment insurance; but this generosity is decreasing in the number of uncivic individuals. In this context, I determine the evolution of preferences across generations and show that cultural heterogeneity is sustained over the long‐run. The dynamics of cultural transmission can generate a long lag between the introduction of unemployment insurance and an increase in people's willingness to live off government‐provided benefits. Hence, it offers an explanation to the ‘European unemployment puzzle’ due to the coexistence of generous unemployment insurance and low unemployment in the 1950s and 1960s.     

Financing Unemployment Benefits: Dismissal versus Employment Taxes

Abstract. This paper investigates the effects of using dismissal taxes to finance unemployment benefits. We compare dismissal and employment taxes in a model with search frictions. Employment taxes give rise to externalities because firms do not take into account the effects their dismissal decisions have on others. These externalities can be tackled by using dismissal taxes to finance unemployment insurance. Taking into account the budget for unemployment insurance, employment taxes can be reduced by more than is necessary to offset the adverse effect of dismissal taxes on the value of the firm. The introduction of dismissal taxes leads to higher job creation and lower unemployment.     

Shocks,Stocks, and Socks: Smoothing Consumption Over a Temporary Income Loss

We investigate how households in temporarily straitened circumstances due to an unemployment spell cut back on expenditures and how they spend marginal dollars of unemployment insurance (UI) benefit. Our theoretical and empirical analyses emphasize the importance of allowing for the fact that households buy durable as well as non‐durable goods. The theoretical analysis shows that in the short run households can cut back significantly on total expenditures without a significant fall in welfare if they concentrate their budget reductions on durables. We then present an empirical analysis based on a Canadian survey of workers who experienced a job separation. Exploiting changes in the unemployment insurance system over our sample period we show that cuts in UI benefits lead to reductions in total expenditure with a stronger impact on clothing than on food expenditures. Our empirical strategy allows that these expenditures may be non‐separable from employment status. The effects we find are particularly strong for households with no liquid assets before the spell started. These qualitative findings are in precise agreement with the theoretical predictions. (JEL: D11, D12, D91, J65)     

UNEMPLOYMENT INSURANCE IN WELFARE STATES: THE IMPACTS OF SOFT DURATION CONSTRAINTS

Abstract Based on a major reform of Norwegian unemployment insurance (UI), we examine the behavioral impacts of soft and hard UI duration constraints. A constraint is interpreted as hard if a claimant cannot rely on any form of income support after exhaustion, and as soft if UI is replaced by follow‐on benefits or participation in active labor market programs (ALMP). We find that both hard and soft constraints raise the job hazard significantly, with surprisingly similar spikes at UI exhaustion. Participation in ALMP raises the probability of eventually finding a job, but at the cost of lengthening the overall job‐search period.     

THE JOINT DESIGN OF UNEMPLOYMENT INSURANCE AND EMPLOYMENT PROTECTION: A FIRST PASS

Unemployment insurance and employment protection are typically discussed and studied in isolation. In this paper, we argue that they are tightly linked, and we focus on their joint optimal design in a simple model, with risk‐averse workers, risk‐neutral firms, and random shocks to productivity. We show that, in the “first best,”unemployment insurance comes with employment protection—in the form of layoff taxes; indeed, optimality requires that layoff taxes be equal to unemployment benefits. We then explore the implications of four broad categories of deviations from first best: limits on insurance, limits on layoff taxes, ex post wage bargaining, and ex ante heterogeneity of firms or workers. We show how the design must be modified in each case. Finally, we draw out the implications of our analysis for current policy debates and reform proposals, from the financing of unemployment insurance, to the respective roles of severance payments and unemployment benefits.     

Noncontractible Heterogeneity in Directed Search

This paper provides a directed search model designed to explain the residual part of wage variation left over after the impact of education and other observable worker characteristics have been removed. Workers have private information about their characteristics at the time they apply for jobs. Firms value these characteristics differently and can observe them once workers apply. They hire the worker they most prefer. However, the characteristics are not contractible, so firms cannot condition their wages on them. This paper shows how to extend arguments from directed search to handle this, allowing for arbitrary distributions of worker and firm types. The model is used to provide a functional relationship that ties together the wage distribution and the wage–duration function. This relationship provides a testable implication of the model. This relationship suggests a common property of wage distributions that guarantees that workers who leave unemployment at the highest wages also have the shortest unemployment duration. This is in strict contrast to the usual (and somewhat implausible) directed search story in which high wages are always accompanied by higher probability of unemployment.     

UNEMPLOYED BUT OPTIMISTIC: OPTIMAL INSURANCE DESIGN WITH BIASED BELIEFS

This paper analyzes how biased beliefs about employment prospects affect the optimal design of unemployment insurance. Empirically, I find that the unemployed greatly overestimate how quickly they will find work. As a consequence, they would search too little for work, save too little for unemployment and deplete their savings too rapidly when unemployed. I analyze the use of the “sufficient‐statistics” formula to characterize the optimal unemployment policy when beliefs are biased and revisit the desirability of providing liquidity to the unemployed. I also find that the optimal unemployment policy may involve increasing benefits during the unemployment spell.     

PAYROLL TAXES,SOCIAL INSURANCE,AND BUSINESS CYCLES

Payroll taxes represent a major distortionary influence of governments on labor markets. This paper examines the role of time‐varying payroll taxes and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance, when the latter is only imperfectly related to search effort. A balanced social insurance budget induces countercyclical payroll taxation, renders gross wages more rigid over the cycle and strengthens the model's endogenous propagation mechanism. For conventional calibrations, the model generates a negatively sloped Beveridge curve and countercyclical unemployment as well as substantial volatility and persistence of vacancies and unemployment.     

Do Interactions between Unemployment Insurance and Sickness Insurance Affect Transitions to Employment?

Previous research suggests that there are substantial interactions between the unemployment and sickness insurance in Sweden. Moral hazard arises in the interplay between these insurance systems, as by reporting sick an unemployed person can postpone unemployment insurance expiration and sometimes receive considerably higher benefits. I examine whether these interactions affect the transition rate to employment. To do this I use a reform that greatly reduced the incentives to transfer to sickness benefits. Although there is evidence that this reform effectively lowered the incidence of sick reports among the unemployed, I do not find that the reduced sick report rate in turn affected the transition rate to employment.     

Unemployment Duration of Spouses: Evidence From France

This paper analyses the conditional probability of leaving unemployment of French married individuals from 1991 to 2002. We find that the effect of spousal labor income on unemployment duration is asymmetric for men and women. In particular, the probability of men to find a job is increasing in wife's labor income, while it is decreasing in husband's earnings for women. To adjust for endogenous selection into marriage, we use the quarter of birth as an instrumental variable for the spousal wage. Finally, we show that introducing a breadwinner stigma in a joint job search model generates the positive correlation observed for men in the data.     

Empirical Analyses of Causal Relationships among Estimated Aggregate Unemployment Duration and Some Properly Chosen Economic Variables

ABSTRACT: The paper is concerned with estimating and analysing the duration of unemployment, that is the length of time people spend on average looking for work. The first issue of the paper is to estimate unemployment duration using data from the survey on labour force done quarterly in Italy by ISTAT, the National Institute of Statistics. The survey data on the duration of unemployment measure duration so far, that is the average length of unemployment spells in progress up to the date of the survey, but they don't provide any information about completed duration of unemployment experimented by people before finding a job or leaving the labour force. In order to estimate the average length of completed unemployment spells, we would have to use data on cohorts of people followed from the time of entry to the time of exit from the labour market. As longitudinal data is not available, the problem becomes rather complex. One way to get round this is to use data on flows to firstly estimate probabilities of leaving unemployment within a particular period. The available data refer to quarterly flows and yearly flows. This makes it possible to estimate short-term unemployment (less than six months) and long-term unemployment (more than twelve months). In another paper we have analysed the nature of the bias introduced by estimating short-term and long-term unemployment in the way we do, and we have come to the conclusion that the bias is approximately a constant, which can be very easily estimated and eliminated. The second issue of the paper is to analyse the estimated short-term and long-term unemployment in relation to cyclical changes in the economic system and with trend changes in the number of unemployed people seeking the first job. In particular, we want to establish the extent of causal relationships between the chosen explanatory variables and the dependent variable. These causal analyses are done separately for the male and female population, and cover the period from the first quarter of 1979 to the last quarter of 1986.     

DISTANCE TO RETIREMENT AND OLDER WORKERS‘ EMPLOYMENT: THE CASE FOR DELAYING THE RETIREMENT AGE

This paper presents empirical evidence and a theoretical foundation in favor of the view that the retirement age decision affects older workers' employment prior to retirement. To the extent that there are search frictions on the labor market, the return on jobs is determined by their expected duration: The time to retirement is then key to understanding older workers' employment. Countries with a retirement age of 60 are indeed characterized by lower employment rates for workers aged 55–59. Based on the French Labor Force Survey, we show that the likelihood of employment is significantly affected by the distance to retirement, in addition to age and other relevant variables. We then extend McCall's job search model by explicitly integrating life‐cycle features with the retirement decision. Using simulations, we show that the distance effect in interaction with the generosity of unemployment benefits and the depressed demand for older workers explains the low rate of employment just before the eligibility age for the Social Security pension. Finally, we show that implementing actuarially fair schemes not only extends the retirement age, but also encourages a more intensive job search by older unemployed workers. (JEL: J22, J26, H55)     

MEASURING LABOR MARKET FRICTIONS: A CROSS‐COUNTRY COMPARISON

In this paper we define and estimate measures of labor market frictions using data on job durations. We compare different estimation methods and different types of data. We propose and apply an unconditional inference method that can be applied to aggregate duration data. It does not require wage data, it is invariant to the way in which wages are determined, and it allows workers to care about other job characteristics. The empirical analysis focuses on France, but we perform separate analyses for the United States of America, the United Kingdom, Germany, and the Netherlands. We quantify the monopsony power due to search frictions and we examine the policy effects of the minimum wage, unemployment benefits, and search frictions. (JEL: J63, J64)