Search

This article characterizes the relation between the equilibrium unemployment insurance replacement rate and the frequency of its political choice. We first use a tractable analytical model to show how insurance, incentive, and redistribution effects interact at the equilibrium. We then examine a fully repeated choices equilibrium in a quantitative heterogeneous agents model and show that unemployment persistence, whether a policy is announced first or not, and the type of the political process are key determinants of the relation between the equilibrium replacement rate and the frequency of its choice. In a utilitarian welfare context, we find that the equilibrium replacement rate is higher if the policy is chosen more frequently but this relation is reversed in a median voter context. [ABSTRACT FROM AUTHOR]

This paper examines how changes in household-level risk sharing affect the marriage market. We use as our laboratory a German unemployment insurance (UI) reform that tightened means-testing based on the partner's income. The reduced generosity of UI increased the demand for household-level risk sharing, which lowered the attractiveness of individuals exposed to unemployment risk. Because unemployment risk correlates with non-German nationality, our main finding is that the UI reform led to a decrease in intermarriage. The 2004 expansion of the European Union had a comparable effect on intermarriage for the affected nationalities. Both reforms increased marital stability, which is consistent with better selection by couples. [ABSTRACT FROM AUTHOR]

Using an event study approach and a novel data set that links administrative information on German establishments with exact distance measures from geo-referenced address data, we analyze the net impact of mass layoffs on local employment. We find that local spillovers significantly attenuate the direct impact of mass layoffs on municipal-level employment. About a quarter of the 1-year direct employment loss due to a mass layoff event is absorbed within the same municipality. Local spillovers are especially pronounced very close to the mass layoff site; the majority of the absorption is concentrated within a 1000-m radius. There is little evidence of spillovers beyond the affected municipality. [ABSTRACT FROM AUTHOR]

The Unemployment Insurance (UI) system in the United States has played a decisive lifeline role in effectively mitigating the economic and social impact of the Covid-19 pandemic, which prompted the largest expansion of UI programs in history, one that is unprecedented in scope, scale and cost. However, the crisis has once again exposed some well-known challenges of the program, perhaps best epitomized by the steady decline since the 1980s of both the recipiency rate and the wage replacement rate, which is partly related to the UI system's funding structure. As a result, on the eve of the pandemic less than one in three unemployed workers used to collect UI benefits – of lower amounts and often for shorter periods of time than before – despite that the average duration of unemployment had almost doubled in the aftermath of the Great Recession. The pandemic has also laid bare additional shortcomings – most notably in the effectiveness of the UI delivery infrastructure to provide timely and accurate payments – which have prompted further calls for modernizing the UI system. The objective of this paper is threefold: first, after a brief description of the main structural characteristics of the UI system, it compares the role played by UI in mitigating the impact of the 2008–09 Great Recession and the 2020 Covid-19 pandemic; second, it reviews the empirical evidence from the pandemic on potential demand-side (countercyclical stabilization) and supply-side (job-search disincentives) effects of emergency extensions of UI programs. Finally, it discusses the main lessons that the expansion of UI programs to respond to the pandemic can offer to inform – and enrich – the debate on whether and how to reform the UI system. The experience with the UI system provides fundamental lessons that can usefully inform the debate on whether and how to introduce – for example in Europe – a common unemployment insurance scheme for macroeconomic stabilization.

This article analyzes the behavioral effects of cash transfer programs when jobless people need to have access to a minimum consumption level. Our model reconciles recent evidence about negligible or favorable effects of cash transfers on job-finding rates and the more standard view of negative effects. When unemployment compensation, if any, is low enough, we argue that cash transfer programs can raise the hiring probability. Our framework is flexible enough to generate the standard conclusion as well. Looking specifically at unemployment compensation, its optimal level is generally higher than when a lower bound on consumption is ignored.

We study how a reduction in potential benefit duration (PBD) affects employment and earnings of job seekers before and after unemployment benefits exhaust. Reducing PBD induces job seekers to become less selective and accept jobs earlier, which can worsen or improve labor market outcomes. We study a 2003 reform that reduces PBD from 24 to 18 months for job seekers younger than 55 years in Switzerland. Using older job seekers as a control group, we find that reducing PBD increases employment and earnings even after unemployment benefits have run out. Employment and earnings increase particularly strongly for job seekers who previously worked in industries with high R&D expenditures, industries where job seekers' skills can depreciate rapidly. [ABSTRACT FROM AUTHOR]

In this paper, we investigate the causes and consequences of "unclaimed" unemployment insurance (UI) benefits. A search model is developed where the costs to collecting UI benefits include both a traditional "fixed" administrative cost and an endogenous cost arising from worker and firm interactions. Experience rated taxes give firms an incentive to challenge a worker's UI claim, and these challenges are costly for the worker. Exploiting data on improper denials of UI benefits across states in the U.S. system, a two‐way fixed effects analysis shows a statistically significant negative relationship between the improper denials and the UI take‐up rate, providing empirical support for our model. We calibrate the model to elasticities implied by the two‐way fixed effects regression to quantify the relative size of these UI collection costs. The results imply that on average the costs associated with firm challenges of UI claims account for 41% of the total costs of collecting, with improper denials accounting for 8% of the total cost. The endogenous collection costs imply the unemployment rate responds much slower to changes in UI benefits relative to a model with fixed collection costs. Finally, removing all eligibility requirements and allowing workers to collect UI benefits without cost shows these costs to be 4.5% of expected output net of vacancy costs. Moreover, this change has minimal impact on the unemployment rate. [ABSTRACT FROM AUTHOR]

We use administrative data to examine the effect of a 50 percent benefit cut for young unemployed claimants in Ireland during the Great Recession. Because the cut applied only to new spells, claimants whose unemployment start dates differed by one day received very different benefits; we exploit this feature in a regression discontinuity analysis. We find that the benefit cut significantly reduced unemployment duration, with exits to training and work accounting for the majority of this effect. [ABSTRACT FROM AUTHOR]

In this paper, I revisit the central trade‐off between insurance and incentives in the design of unemployment insurance policies. The generosity of unemployment insurance benefits differs not only across countries, but also across workers within countries. After illustrating some important dimensions of heterogeneity in a cross‐country analysis, I extend the standard Baily–Chetty formula to identify the key empirical moments and elasticities required to evaluate the differentiated unemployment policy within a country. I also review some prior work and aim to provide guidance for future work trying to inform the design of unemployment policies. [ABSTRACT FROM AUTHOR]

We study unemployment insurance in a framework where the main source of heterogeneity among agents is the type of household they live in: some agents live alone while others live with their spouses as a family. Our exercise is motivated by the fact that married individuals can rely on spousal income to smooth labor market shocks, while singles cannot. We extend a version of the standard incomplete‐markets model to include two‐agent households and calibrate it to the US economy with special emphasis on matching differences in labor market transitions across gender and marital status as well as aggregate wealth moments. Our central finding is that changes to the current unemployment insurance program are valued differently by married and single households. In particular, a more generous unemployment insurance reduces the welfare of married households significantly more than that of singles and vice versa. We show that this result is driven by the amount of self‐insurance existing in married households, and thus, we highlight the interplay between self‐ and government‐provided insurance and its implication for policy. [ABSTRACT FROM AUTHOR]

In the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60 percent to 50 percent after 180 days of unemployment for all spells beginning on or after July 15, 2012. Using Social Security data and a differences-in-differences approach, we find that reducing the RR by ten percentage points (or 17 percent) increases workers' odds of finding a job by 41 percent relative to similar workers not affected by the reform. To put it differently, the reform reduced the mean expected unemployment duration by 5.7 weeks (or 14 percent), implying an elasticity of 0.86. A regression discontinuity approach indicates that the reform increased the job-finding rate by 26 percent. We find strong behavioral effects as the reform reduced the expected unemployment duration right from the beginning of the unemployment spell. While the reform had no effect on wages, it did not decrease other measures of post-displacement job-match quality. After 15 months, the reform decreased unemployment insurance expenditures by 16 percent, about one-half of which are explained by job seekers' behavioral changes. [End Page 119] [ABSTRACT FROM AUTHOR]

The purpose of this paper is to simultaneously investigate whether the active labour market programmes (ALMPs) and the imposition of benefit sanctions help unemployed insured workers in Denmark to find a job sooner than those who do not get any activation. Earlier studies have modelled ALMPs and benefit sanctions separately, which may have resulted in over- or underestimation of the true effect. As part of our empirical methodology, we used a multivariate mixed proportional hazard model and optimally selected the number of support points for the specification of unobserved heterogeneity distribution in our sample. Our results revealed that the impositions of both benefit sanctions and employment subsidies in the private sector have a positive impact on reducing unemployment duration. Some policy implications are drawn. [ABSTRACT FROM AUTHOR]

This paper uses a high quality administrative longitudinal dataset to assess the impact of an active labour market intervention consisting of referral for interview plus job search assistance with the public employment service in the Republic of Ireland. During the period of the interventions, both job search monitoring and sanctions were virtually non-existent in the country. We found that, relative to a control group that received no public employment service assistance, unemployed individuals that received the interview letter and participated in job search assistance were 11.2 percentage points less likely to have exited to employment prior to 12 months. This result holds when tested against the influences of both sample selection and unobserved heterogeneity bias. The negative treatment impact is attributed to individuals lowering their job search intensity on learning through the activation interview of the lax nature of the activation process in Ireland at that time. The research finds job search assistance being less effective unless combined with other key aspects of the activation process, such as regular job search monitoring and sanctions for non-compliance. [ABSTRACT FROM AUTHOR]

I model job‐search monitoring in the optimal unemployment insurance framework, in which job‐search effort is the worker's private information. In the model, monitoring provides costly information upon which the government conditions unemployment benefits. Using a simple one‐period model with two effort levels, I show analytically that the monitoring precision increases and the utility spread decreases if and only if the inverse of the worker's utility in consumption has a convex derivative. The quantitative analysis that follows extends the model by allowing a continuous effort and separations from employment. That analysis highlights two conflicting economic forces affecting the optimal precision of monitoring with respect to the generosity of the welfare system: higher promised utility is associated not only with a higher cost of moral hazard, but also with lower effort and lower value of employment. The result is an inverse U‐shaped precision profile with respect to promised utility. [ABSTRACT FROM AUTHOR]

Long-term unemployment reached unprecedented levels in Spain in the wake of the Great Recession and it still affects around 57% of the unemployed. We document the sources that contributed to the rise in long-term unemployment and analyze its persistence using state-of-the-art duration models. We find pervasive evidence of negative duration dependence, while personal characteristics such as mature age, lack of experience, and entitlement to unemployment benefits are key to understand the cross-sectional differences in the incidence of long-term unemployment. The negative impact of low levels of skill and education is muted by the large share of temporary contracts, but once we restrict attention to employment spells lasting at least 1 month these factors also contribute to a higher risk of long-term unemployment. Surprisingly, workers from the construction sector do not fare worse than similar workers from other sectors. Finally, self-reported reservation wages are found to respond strongly to the cycle, but much less to individual unemployment duration. In view of these findings, we argue that active labor market policies should play a more prominent role in the fight against long-term unemployment while early activation should be used to curb inflows. [ABSTRACT FROM AUTHOR]

This paper provides a novel justification for a declining time profile of unemployment benefits that does not rely on moral-hazard or consumption-smoothing considerations. We consider a simple search environment with homogeneous workers and low- and high-productivity firms. By introducing a declining time profile of benefits, the government can affect the equilibrium wage profile in a manner that enhances the sorting of workers across low- and high-productivity firms. We demonstrate that optimal government policy depends on the dispersion and skewness of the firms' productivity distribution. [ABSTRACT FROM AUTHOR]

We examine how the reservation wage varies with the waiting time to apply for unemployment benefits. We find that the waiting time has a negative effect on the reservation wage, suggesting that unemployment generates significant and immediate harm for the unemployed. Our results are unique in that they are based on short-term, incomplete spells of unemployment that are precisely measured in weeks. We address the endogeneity of the waiting time using instrumental variables associated with errors in the unemployment insurance (UI) claim, and note that our estimates are likely a lower bound for the welfare declines experienced by the unemployed. [ABSTRACT FROM AUTHOR]

We study the transitions out of unemployment of the recipients of insurance benefits, focusing on whether or not they are recalled to their previous employment. Specifically, a split population duration model (SPDM) for the recall decision by employers is compared with a standard duration model (SDM). We find significant differences between the SPDM and the SDM estimates, both with regard to their magnitude and expected sign. Some of the variables record undervalued estimated hazard rates in the SDM with respect to the SPDM. [ABSTRACT FROM AUTHOR]

This paper examines how unemployment late in workers' careers affects retirement timing. Using data from the Survey of Income and Program Participation from 1996 to 2011, we document that unemployed workers permanently leave the labor force at a significantly higher rate than employed workers. This effect is stronger once workers become eligible for Social Security benefits. The effect of unemployment on retirement early in an unemployment spell is weaker for workers eligible for UI benefits. Unemployed workers, particularly those workers in households with below median wealth, also have a significantly higher rate of early Social Security uptake shortly after turning 62 relative to employed workers. [ABSTRACT FROM AUTHOR]

This paper evaluates the effectiveness of short-time work (STW) schemes for preserving jobs and reducing the segmentation between stable and unstable jobs observed in dual labour markets. For this purpose, we develop and simulate an equilibrium search and matching model considering the situation of the Spanish 2012 labour market reform as a benchmark. Our steady-state results show that the availability of STW schemes does not necessarily reduce unemployment and job destruction. The effectiveness of this measure depends on the degree of subsidization of payroll taxes it may entail: with a 33 % subsidy, we find that STW is quite beneficial for the Spanish economy because it reduces both unemployment and labour market segmentation. We also perform a cost-benefit analysis that shows that there is scope for Pareto improvements when STW is subsidized. Again, the STW scenario with a 33 % subsidy on payroll taxes seems the most beneficial because more than 57 % of workers improve. These workers also experience a significant increase in annual income that could be used to compensate the losers from this policy change and the State for the fiscal balance deterioration. This reform saves the highest number of jobs and has the lowest deadweight costs. [ABSTRACT FROM AUTHOR]

In this paper, we study the separate effects of unemployment and job displacement on fertility in a sample of white collar women in Austria. Using an instrumental variable approach, we show that unemployment incidence as such has no negative effect on fertility decisions, but the very fact of being displaced from a career-oriented job has. Fertility rates for women affected by a firm closure are significantly below those of a control group, even after 6 years, and this is so irrespective of the incidence or the duration of the associated unemployment spell. [ABSTRACT FROM AUTHOR]

A significant fraction of the labor force consists of employed workers who are part-time unemployed (underemployed) in the sense that they are unable to work as much as they prefer. This paper studies the design of optimal unemployment insurance in an economy with unemployment as well as part-time unemployment. Part-time work provides income insurance and serves as a stepping stone to full-time jobs. Unemployment benefits for part-timers reduce the outflow from part-time work to full-time employment. However, such benefits also increase the outflow from unemployment to part-time work, thereby reducing unemployment. We examine the optimal structure of benefits for unemployed and underemployed workers. The results indicate that there are welfare gains from part-time benefits. Moreover, there are welfare gains associated with time limits for unemployment benefits as well as for part-time benefits. The welfare gains from optimal insurance are larger when wages are fixed than when they are flexible. [ABSTRACT FROM AUTHOR]

This paper investigates the interlinkage between microcredit and temporary seasonal migration, an issue which has been given little attention in the standard rural-urban migration literature. Seasonal migration due to agricultural downturns is a common phenomenon in developing countries. Using primary data from a cross-sectional household survey of the northwest part of Bangladesh, this paper quantifies the factors that influence such migration decisions. Our results suggest that people with prior access to microcredit are more likely to migrate during an agricultural lean season. Furthermore, we find evidence of a negative selection effect between microcredit and seasonal migration, conditional on an individual's village of residence and observed characteristics. Our results have numerous potential policy implications, including the design of typical microcredit schemes for developing countries. [ABSTRACT FROM AUTHOR]

Unemployment insurance recipients in the Netherlands were for many years exempted from the requirement to actively search for a job after they reached the age of 57.5. We study how this exemption affected the job finding rates of the recipients involved. Our results indicate that the job finding rate starts to fall just prior to the removal of the search requirement at age 57.5. In addition we find a large negative effect on job finding rates of the actual removal of the search requirement at age 57.5. Apparently, even for persons with seemingly poor job prospects search requirements have a positive effect on finding rates. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]

Do unemployment insurance (UI) benefit recipients take sick leave more often when facing 'activation' by the employment office? We answer this question using administrative data from the German Federal Employment Agency on vacancy referrals sent to UI benefit recipients. Applying duration analysis, we find an increased transition rate into short-term sick leave among individuals who had received vacancy referrals from the employment office. We find that while men on average report less sick compared to women, they respond stronger to a vacancy referral. In subsequent steps, we test the hypothesis that the results are driven by real illnesses as opposed to shirking. Our findings do not support this hypothesis. We interpret the findings as evidence of moral hazard behavior and as evidence of a side effect of an activation measure. [ABSTRACT FROM AUTHOR]

Graduating from a school during a time of adverse economic conditions has a persistent, harmful effect on workers' subsequent employment opportunities. An analysis of panel data from OECD countries during the 1960-2010 periods reveals that a worker who experiences a 1 percentage point higher unemployment rate while the worker is 16-24 years old has a 0.14 percentage point higher unemployment rate at ages 25-29 years and 0.03 percentage points higher at ages 30-34 years. The persistence of this negative effect is stronger in countries with stricter employment protection legislation. A composite index for labor-market rigidity is constructed and the index is shown to have positive correlation with the persistence. Moderating macroeconomic fluctuations is more important in countries that have more persistent labor-market entry effects on subsequent outcomes. [ABSTRACT FROM AUTHOR]

This paper assesses the effects of labour market policies on the unemployment outflow rate while disentangling two channels, namely labour market tightness and employer-employee matching efficiency. Using a sample of 11 OECD countries over the period 1985-2007, we treat the endogeneity of market tightness with business cycle shocks and the tax wedge as instruments. We find that the replacement rate of unemployment benefits, Active Labour Market Policies as well as the tax wedge in countries with poorly representative unions, have a significant, robust, and large impact on market tightness. Employment protection has a negative but small impact on matching efficiency. Overall, policy effects appear to be mostly channeled through market tightness and job creation. [ABSTRACT FROM AUTHOR]

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. [ABSTRACT FROM AUTHOR]