Unemployment Benefits, Unemployment Duration, and Post-Unemployment Jobs: A Regression Discontinuity Approach

Abstract

Structural unemployment appears to be strongly correlated with the potential duration of unemployment across Organization for Eco­ nomic Co­operation and Development (OECD) countries (Stephen Nickell and Richard Layard 1999). The idea is that extended benefit duration discourages searching for a job and thus leads to prolonged unemployment. In this paper, I propose testing this idea by studying discontinuous changes in benefit dura­ tion at the age of 50, which are embedded in the Austrian unemployment insurance system. In particular, job seekers who become unem­ ployed at 50 years of age or older and satisfy a previous work requirement are eligible for 52 weeks of extended benefits rather than 39 weeks. Moreover, due to special restructuring demands in the state­owned steel sector, Austria temporarily implemented a regional extended benefit program (REBP) covering job seekers who enter unemployment at 50 years of age or older, who had been living in certain regions of Austria for at least six months, and who satisfy a previous work requirement. Those individuals were eligible for 209 weeks of benefits instead of 39 weeks. Austrian unemployment insurance rules create a rich design allowing us to study the effects of small increases in benefits by 13 weeks (39 to 52 weeks) in regions that were excluded from the extended benefit program and large benefit extensions by 170 weeks (39 weeks to 209 weeks) in regions with access to the extended benefit program. Because these benefit entitlement rules were discontinuous in age, the corresponding causal effects can be identified in a regression discontinuity framework. This paper contributes to two strands of the literature. The first strand is concerned with measuring the effects of potential benefit dura­ tion on unemployment duration. Recent con­ tributions to this literature include David Card Unemployment Benefits, Unemployment Duration, and Post-Unemployment Jobs: A Regression Discontinuity Approach