Long-term unemployment subsidies and middle-aged disadvantaged workers’ health

Abstract

This paper examines the labour market and health effects of a non-contributory long-term unemployment (LTU) benefit targeted at middle-aged disadvantaged workers. To do so, we exploit a Spanish reform introduced in July 2012 that increased the age eligibility threshold to receive the benefit from 52 to 55. Our results show that men who were eligible for the benefit experience a reduction in injury hospitalisations by 12.9% as well as a 2 percentage points drop in the probability of a mental health diagnosis. None of the results are significant for women. We document two factors that explain the gender differences: the labour market impact of the reform is stronger for men, and eligible men are concentrated in more physically demanding sectors, like construction. Importantly, we also find evidence of a program substitution effect between LTU and partial disability benefits. Our results highlight the role of long-term unemployment benefits as a protecting device for the (physical and mental) health of middle-aged, low-educated workers who are in a disadvantaged position in the labour market.