Benefit Exhaustion Research Articles

Potential duration of unemployment benefits and labor market outcomes for older workers with health impairments in Germany

AbstractThis research note estimates the causal effects of a cut in the potential duration of regular unemployment benefits for older workers in Germany on the labor market outcomes of individuals with health impairments. The analyzed reform is a natural experiment that allows a difference‐in‐differences strategy with treatment intensity. The results provide evidence for a significant decrease in the number of days in regular unemployment benefits and an increase in the number of days in employment. However, the results also suggest a significant increase in the number of days in unemployment (social) assistance, which are granted upon exhaustion of regular unemployment benefits.

Evidence on Job Search Models from a Survey of Unemployed Workers in Germany

Abstract The job-finding rate of unemployment insurance (UI) recipients declines in the initial months of unemployment and then exhibits a spike at the benefit exhaustion point. A range of theoretical explanations have been proposed, but those are hard to disentangle using data on job finding alone. To better understand the underlying mechanisms, we conducted a large text-message-based survey of unemployed workers in Germany. We surveyed 6,349 UI recipients twice a week for four months about their job search effort. The panel structure allows us to observe how search effort evolves in individuals over the unemployment spell. We provide three key facts: (i) search effort is flat early on in the UI spell, (ii) search effort exhibits an increase up to UI exhaustion and a decrease thereafter, (iii) UI recipients do not appear to time job start dates to coincide with the UI exhaustion point. A standard search model with unobserved heterogeneity struggles to explain the second fact, and a model of storable offers is not consistent with the third fact. The patterns are well captured by a model of reference-dependent job search or by a model with duration dependence in search cost.

Bringing Them In or Pushing Them Out? The Labor Market Effects of Pro-cyclical Unemployment Assistance Reductions

We exploit variation from an unanticipated labor market reform in 2012 Spain to causally estimate the effects of pro-cyclical unemployment assistance (UA) reductions on job search behavior and re-employment outcomes. Shorter benefit durations effectively bring individuals back to work and reduce non-employment duration. However, they also induce displacements out of the labor force and strong substitution patterns towards other, less generous, welfare programs, highlighting the social insurance role of long-term benefits during economic downturns. Despite the sharp drop in non-employment duration, we also document a significant decrease in re-employment wages, consistent with reduced workers' reservation wages and limited duration dependence. Heterogeneity analyses show that relatively younger workers are the ones that are brought back into re-employment in lower-quality jobs, while older workers are pushed out of the labor force. Looking at responses over the non-employment spell, we provide evidence against the standard assumption of forward-looking behavior of benefit recipients, as we do not detect any change in workers' behavior before benefit exhaustion. Overall, we estimate that the reform induced only moderate fiscal savings for the government.

Unemployment Insurance and Job Search Behavior

AbstractHow does unemployment insurance (UI) affect unemployed workers’ search behavior? Search models predict that until benefit exhaustion, UI depresses job search effort and increases reservation wages. Over an unemployment spell, search effort should increase up to benefit exhaustion and stay high thereafter. Meanwhile, reservation wages should decrease up to benefit exhaustion and stay low thereafter. To test these predictions, we link administrative registers to data on job search behavior from a major online job search platform in France. We follow over 400,000 workers, as long as they remain unemployed. We analyze the changes in search behavior around benefits exhaustion and take two steps to isolate the individual response to unemployment benefits. First, our longitudinal data allows us to correct for changes in sample composition over the spell. Second, we exploit data on workers eligible for 12–24 months of UI as well as workers ineligible for UI, to control for behavior changes over the unemployment spell that are independent of UI. Our results confirm the predictions of search models. We find that search effort (the number of job applications) increases by at least 50% during the year preceding benefits exhaustion and remains high thereafter. The target monthly wage decreases by at least 2.4% during the year preceding benefits exhaustion and remains low thereafter. In addition, we provide evidence for duration dependence: workers decrease the wage they target by 1.5% over each year of unemployment, irrespective of their UI status.

Evidence on Job Search Models from a Survey of Unemployed Workers in Germany

The job finding rate of Unemployment Insurance (UI) recipients declines in the initial months of unemployment and then exhibits a spike at the benefit exhaustion point. A range of theoretical explanations have been proposed, but those are hard to disentangle using data on job finding alone. To better understand the underlying mechanisms, we conducted a large text-message-based survey of unemployed workers in Germany. We surveyed 6,349 UI recipients twice a week for 4 months about their job search effort. The panel structure allows us to observe how search effort evolves within individuals over the unemployment spell. We provide three key facts: 1) search effort is flat early on in the UI spell, 2) search effort exhibits an increase up to UI exhaustion and a decrease thereafter, 3) UI recipients do not appear to time job start dates to coincide with the UI exhaustion point. A standard search model with unobserved heterogeneity struggles to explain the second fact, and a model of storable offers is not consistent with the third fact. The patterns are well captured by a model of reference-dependent job search or by a model with duration dependence in search cost. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The spike at benefit exhaustion: The role of measurement error in benefit eligibility

Many studies have found that the exit rate from unemployment insurance benefits to employment increases at the end of the entitlement period. The magnitude of this “spike” in the job finding rate at benefit exhaustion is important for assessing the distortionary effect of unemployment insurance, whereas the shape of the job finding rate around that point is informative about the validity of the competing theoretical models of job search. Using exceptionally rich register data for Finland, we show that difficulties in measuring the time to benefit exhaustion can lead to severely biased estimates of the job finding rate around benefit exhaustion. When the time to benefit exhaustion is accurately measured, the job finding rate starts to increase two months prior to benefit exhaustion and peaks sharply in the last week of benefit eligibility, after which its drops immediately below the pre-spike level.

Unemployment Insurance and Job Search Behavior

Unemployment insurance (UI) can affect unemployment duration and re-employment wages, through various dimensions of unemployed workers’ job search behavior. We shed light on the effects of UI on job search behavior using new longitudinal data: we link administrative registers to data from a major online search platform, and track the job applications sent over the unemployment spells of about 500,000 French workers. We identify changes in individual search behavior caused by UI around benefits exhaustion, after accounting for changes in the sample composition—i.e. dynamic selection—and for the effect of the time spent unemployed—i.e. duration dependence. We show that search effort (the count of job applications) increases by at least 50% during the year preceding benefits exhaustion and remains relatively high thereafter. The target monthly wage decreases by at least 2.4% during the year preceding benefits exhaustion, and remains relatively low thereafter. We document particularly large dynamic selection around benefits exhaustion, as some workers increase their search effort more before exhaustion and find a job faster. We also show evidence for duration dependence: workers decrease their target wage by 1.5% over each year of unemployment, irrespective of their UI status. Overall, the effect of UI on individual search behavior is consistent with the predictions of search models and constitutes evidence against search-free models where UI merely subsidizes leisure.

Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany

This paper explores the effects of a major reform of unemployment benefits in Germany on the labor market outcomes of individuals with some health impairment. The reform induced a substantial reduction in the potential duration of regular unemployment benefits for older workers. This work analyzes the reform in a wider framework of institutional interactions, which allows us to distinguish between its intended and unintended effects. Our results provide causal evidence for a significant decrease in the number of days in unemployment benefits and increase in the number of days in employment. However, they also suggest a significant increase in the number of days in unemployment assistance, granted upon exhaustion of unemployment benefits. Transitions to unemployment assistance represent an unintended effect, limiting the success of a policy change that aims to increase labor supply via reductions in the generosity of the unemployment insurance system.

Marriage, Labor Supply and the Dynamics of the Social Safety Net

The 1996 US welfare reform introduced limits on years of welfare receipt. We show that this reduced program participation, raised employment for single mothers, and reduced divorce. A limited commitment, lifecycle model of labor supply, marriage and divorce, estimated on pre-reform data, replicates these effects. A large part of the responses occur in anticipation of benefit exhaustion, impacting primarily women with low potential earnings. The reform reduces lifetime utility of women, even allowing for the government savings, but has negligible effects on men. The expectation of marriage attenuates the losses for women and an increased probability of single-motherhood raises them.

The Spike at Benefit Exhaustion in the Finnish Labor Market

Many studies have found that the exit rate from unemployment increases in the vicinity of the exhaustion day of unemployment insurance benefits. The extent to which this is driven by job search behavior is important for assessing the distortionary effect of unemployment insurance. Card, Chetty and Weber (American Economic Review 2007; 97: 113-118) find a large spike in the exit rate from registered unemployment but only a very small spike in the job finding rate in Austria. We replicate their analysis using matched register data for Finland. We find a large spike also in the job finding rate at the time of benefit exhaustion, even though it is clearly smaller than the spike in the exit rate from unemployment benefits. In addition, we demonstrate difficulties in measuring the time to benefit exhaustion when the benefit entitlement can elapse at a reduced rate during activation measures or part-time working. Unless the remaining benefit entitlement is directly observed in the data, the resulting measurement error can lead to downward biased estimates of the spikes at benefit exhaustion.

Accelerating the transition to employment at benefit exhaustion: still possible after four years of unemployment?

This paper provides evidence of how the long-term unemployed react to the threat of running out of unemployment insurance (UI) after receiving it for nearly 4 years. To identify the effect of UI exhaustion, we make use of a 1999 Danish legislative change that progressively reduced potential benefit duration from 5 to 4 years. We find that shortening UI duration hastens the transition to employment throughout the unemployment spell up to benefit exhaustion even if it occurs as long as 4 years later. However, although the proportional effect is large, it is small in absolute value.

The Spike at Benefit Exhaustion in the Finnish Labor Market

Many studies have found that the exit rate from unemployment increases in the vicinity of the exhaustion day of unemployment insurance benefits. The extent to which this is driven by job search behavior is important for assessing the distortionary effect of unemployment insurance. Card, Chetty and Weber (American Economic Review 2007; 97: 113-118) find a large spike in the exit rate from registered unemployment but only a very small spike in the job finding rate in Austria. We replicate their analysis using matched register data for Finland. We find a large spike also in the job finding rate at the time of benefit exhaustion, even though it is clearly smaller than the spike in the exit rate from unemployment benefits. In addition, we demonstrate difficulties in measuring the time to benefit exhaustion when the benefit entitlement can elapse at a reduced rate during activation measures or part-time working. Unless the remaining benefit entitlement is directly observed in the data, the resulting measurement error can lead to downward biased estimates of the spikes at benefit exhaustion.

Job Search, Unemployment Protection and Informal Work in Advanced Economies

This paper investigates the incentives that may induce workers to supplement income from unemployment benefits by engaging in temporary informal work. Using a dynamic model of job-search with moral hazard that incorporates a stylised schedule of benefit payments, we describe how informal sector participation changes over the duration of unemployment, in turn affecting the incentive to search for formal employment. We find that increasing benefit generosity makes job seekers less reliant on informal work, enabling them to search more intensively. At the same time, when detection rates are low, informal work participation may decline as benefit exhaustion approaches, reinforcing this effect. From a policy perspective, the analysis identifies scope for reallocation of resources towards less generous programmes within unemployment protection, which would reduce the size of the informal sector and unemployment in the economy.

Un couple espagnol dans la récession de 2008. Composition et évaluation des revenus alternatifs

A Spanish couple during the recession of 2008.Composition and evaluation of alternative incomes. This article analyzes the possibilities of alternative incomes to those from employment within the context of the mass unemployment experienced by Spain since the recession of 2008. The survey was based on an ethno-accounting process involving a Spanish couple with one child. Both the man and woman found themselves unemployed and struggling to make ends meet. After briefly describing this family and their life history, three sources of income are described which provide the household with the means of partially tackling the loss of two salaries and the gradual exhaustion of unemployment benefits : the husband''s " odd jobs", his wife''s artisanal products and assistance from the family. All three cases revealed relatively little room for maneuver, as well as the diversity and materiality of incomes that were largely invisible apart from through ethno-accounting analysis.

PROTOCOL: Reducing Unemployment Benefit Duration to Increase Job Finding Rates: Protocol for a Systematic Review

PROTOCOL: Reducing Unemployment Benefit Duration to Increase Job Finding Rates: Protocol for a Systematic Review

Unemployment Benefit Exhaustion

Purpose: This systematic review studied the impact of exhaustion of unemployment benefits on the exit rate out of unemployment and into employment prior to benefit exhaustion or shortly thereafter. Method: We followed Campbell Collaboration guidelines to prepare this review, and ultimately located 12 studies for final analysis and interpretation. Twelve studies could be included in the data synthesis. Results: We found clear evidence that the prospect of exhaustion of benefits results in a significantly increased incentive for finding work. Discussion: The theoretical suggestion that the prospect of exhaustion of benefits results in an increased incentive for finding work has been confirmed empirically by measures from seven different European countries, the United States, and Canada. The results are robust in the sense that sensitivity analyses evidenced no appreciable changes in the results. We found no strong indication of the presence of publication bias.

The Effects of Reducing the Entitlement Period to Unemployment Insurance Benefits

This paper exploits a substantial reform of the Dutch UI law to study the effect of the entitlement period on job finding and subsequent labor market outcomes. Using detailed administrative data covering the full population we find that reducing the entitlement period increases the job finding rate, but decreases the job quality. Unemployed workers accept more often temporary jobs with lower wages and fewer working hours. Therefore, they also change jobs more frequently. The reform did not affect total post-unemployment earnings indicating that the positive effects on job finding and job turnover cancel out the negative effects on job quality. We also observe a spike in job finding around benefits exhaustion even, although more modest, for individuals who do not experience a drop in benefits level when moving to welfare.

Unemployment Benefit Exhaustion: Incentive Effects on Job Finding Rates: A Systematic Review

In order to reduce unemployment levels, policymakers may wish to reduce the generosity of the unemployment system. While it may be politically intractable to lower the amount of unemployment benefits, the length of the unemployment benefit eligibility period is often used as a political instrument to create work incentives for the unemployed. If the prospect of exhaustion of unemployment benefits results in a significantly increased incentive for finding work, shortening the benefit eligibility period may reduce the share of long and unproductive job searches and thereby decrease the overall unemployment level.

Re-employment probabilities of unemployment benefit recipients

This article studies transitions out of unemployment for benefit recipients in Spain. We analyse the duration of unemployment, distinguishing between spells that end in recall (workers returning to the previous employer) and spells that end in exit to a new job. This distinction allows us to find that the recall hazard rate increases around the time of exhaustion of benefits. However, this happens only for workers receiving Unemployment Insurance (UI). Because we are unable to replicate this result for workers receiving Unemployment Assistance (UA), we believe the finding lends support to the hypothesis that in Spain firms and workers make a strategic use of UI.

Why is There a Spike in the Job Finding Rate at Benefit Exhaustion?

Putting a limit on the duration of unemployment benefits tends to introduce a “spike” in the job finding rate shortly before benefits are exhausted. Current theories explain this spike from workers’ behavior. We present a theoretical model in which also the nature of the job matters. End-of-benefit spikes in job finding rates are related to optimizing behavior of unemployed workers who rationally assume that employers will accept delays in the starting date of a new job, especially if these jobs are permanent. This gives some workers an incentive to not immediately start working after they have found a job. Instead they wait until their benefits expire. We use a dataset on Slovenian unemployment spells to test this prediction and find supporting evidence. We conclude that the spike in the job finding rate suggests that workers exploit unemployment insurance benefits for subsidized leisure.