Duration Of Unemployment Benefits Research Articles

How unemployment benefit duration shapes startup motivation and growth

AbstractBusiness creation is economically important, and unemployment precedes the creation of a substantial share of new firms. Yet, most research has focused on analyzing the effects of unemployment insurance policies on re-employment outcomes, ignoring self-employment. In this paper, we analyze how the potential duration of unemployment benefits, a fundamental design choice of unemployment insurance systems, affects whether new firms are founded out of opportunity or necessity and their growth potential. To this end, we construct a comprehensive dataset on German firm founders that links administrative social insurance information with business survey data. Exploiting reform and age-related exogenous variation in the potential duration of unemployment benefits, we find that longer potential benefit duration implies longer actual unemployment and, as a consequence, more necessity entrepreneurship and worse startup outcomes in terms of sales and employment growth. We explain this overall effect of potential benefit duration through a mix of compositional and individual-level duration effects. Our findings underline that new firms started out of unemployment are a highly heterogeneous group and suggest that the (optimal) design of unemployment insurance systems has important externalities on whether innovation- and growth-oriented firms are started out of unemployment.

Job search with commuting and unemployment insurance: A look at workers’ strategies in time

Unemployed workers search for jobs that ideally offer both high wages and short commutes. But would they accept jobs with lower wages or longer commutes or both as the unemployment spell lengthens? Using a unique panel of Austrian workers, we find that job seekers do indeed accept jobs with significantly lower wages. However, the majority group of job seekers who used to commute to jobs located outside their municipality of residence tend to increasingly accept jobs in their home municipality, and do not necessarily broaden geographically their search. Based on quasi-experimental variations in the duration of unemployment benefits, we find that this evolution of commuting patterns is not linked to the loss of benefits. We explain these findings through the lens of a job search model where flexible parameters such as search costs are allowed to vary across space and time. We estimate that search costs are substantial and increase differently over time for local and non-local jobs, accounting for the patterns found in the data. A counterfactual policy exercise suggests that unemployment insurance does not hinder geographical mobility. Competing mechanisms are discussed and their role is left to future research.

Characterization of optimal durations of unemployment benefits in a nonstationary job search model

This paper studies the optimal duration of unemployment insurance (UI) benefits in a job search model where a risk neutral UI agency cannot monitor the search effort of risk-averse workers. Unemployment assistance benefits for noneligible unemployed are taken as exogenous by the unemployment agency which chooses optimally the constant level of UI benefits, the date of their exhaustion and the constant level of the financing tax. So, due to possible finite values of the duration of unemployment benefits, the resulting agency’s problem involves nonstationarities that appears somewhat difficult to solve from the analytical viewpoint. Based upon the geometric properties of the incentive and budget constraints, we successfully provide two explicit sufficient conditions regarding the parameters of the model for obtaining a positive and finite optimal duration of UI. We then give a theoretical rationale for most unemployment insurance systems.

The perceived fair duration of unemployment benefits for older workers. The role of lifetime achievements in the labour market

AbstractThe welfare state regulates social policies and reallocates scarce resources. For the social legitimacy of the welfare state, it is important that the public supports the principles underlying this reallocation. This article examines the impact of different activities during the life course on public deservingness perceptions of older unemployed people. In a factorial survey experiment conducted among a random sample of individuals drawn from German administrative employment records, we examine the maximum duration of benefit receipt which is perceived as fair for older unemployed persons with different biographies. The results indicate strong public support for a nexus between previous contributions and benefit entitlements. Besides financial contributions to unemployment insurance, parenting and further training are considered to be ‘lifetime achievements’ which justify longer unemployment benefit receipt. We interpret these findings as an expression of a generalised form of reciprocity which guides perceptions of deservingness regarding older unemployed persons.

Diverse effects of shorter potential unemployment benefit duration on labor market outcomes in Germany

AbstractThis paper explores diverse effects of an unemployment benefit (UB) reform in Germany on labor market outcomes of individuals with health impairment. The reform induced substantial reductions in potential duration of regular UB for older workers, which is exploited in a difference‐in‐differences setting. The results provide evidence for a decrease in days in UB, an increase in days in employment, and an increase in days in unemployment assistance. The effects on UB and employment are smaller and the effects on unemployment assistance are larger for unemployed and non‐employed individuals than for individuals who were employed before medical rehabilitations.

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.

Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

We model automatic trigger policies for unemployment insurance by simulating a weekly panel of individual labor market histories, grouped by state. We reach three conclusions: (i) policies designed to trigger immediately at the onset of a recession result in benefit extensions that occur in less sick labor markets than the historical average for benefit extensions, (ii) the ad hoc extensions in the 2001 and 2007-2009 recessions compare favorably ex post to common proposals for automatic triggers, and (iii) compared to ex post policy, the cost of common proposals for automatic triggers is close to zero.

Which Duration of Unemployment Benefits is Perceived as Being Just for Which Groups? Results from a Factorial Survey Experiment in Germany

Welfare states allocate and redistribute resources across different groups. For the social legitimacy of welfare states, public support of redistributive processes and outcomes is crucial. An important aspect in this context is the deservingness or non-deservingness of benefit recipients from the perspective of those who both financially contribute to the system and potentially benefit from it. We invited a random sample of the German labour force to participate in an online-survey. Using a factorial survey experiment, we described fictitious unemployed persons with different attributes and asked survey participants on the just maximum benefit duration for each particular case. Judgements regarding just benefit durations vary along the criteria of reciprocity, control, attitude and need: Respondents grant longer unemployment benefits to older jobseekers, as well as to jobseekers who became involuntarily unemployed, had stable employment careers, have to care for the elderly or are sole earners in the household.

Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

A review on the elasticity of unemployment duration to the potential duration of unemployment benefits

AbstractIn this paper, I present an exhaustive literature review on the empirical work that estimated the impact of the potential duration of unemployment insurance on unemployment duration, measured in a week‐to‐week elasticity. For each study, I include information on data—county, period of analysis, type of database, gender, and age, estimation—estimation model, unobserved heterogeneity, and source of identification, and average effect. The range of estimates is wide: from 0.02 to 1.3 weeks for each additional week of potential duration. This review suggests that larger estimates belong to studies analyzing North America before the 1990s, Europe in more recent periods, survey data, female, older individuals, using other estimation techniques than survival analysis, or survival analysis that account for unobserved heterogeneity.

Benefit duration, job search behavior and re-employment

This paper studies how the potential duration of unemployment benefits affects early job search behavior and re-employment outcomes. We exploit an unexpected reform of the German unemployment insurance (UI) scheme in 2008, which increased the potential benefit duration from 12 to 15 months for benefit recipients of age 50 to 54. Based on detailed survey data and a difference-in-differences design, we estimate that one additional month of potential benefits reduces early job applications by around 10%. Using social security data, we further find that the extension of benefits increases the average nonemployment duration of individuals entering UI after the reform. Among individuals who got treated at later stages of their unemployment spell, the increased UI coverage does not appear to come at the cost of longer nonemployment. A cautious back-of-the-envelope calculation reveals substantial job finding returns to early search effort.

Self-reported work ability predicts health-related exit and absence from work, work participation, and death: longitudinal findings from a sample of German employees

ObjectiveThe cohort study examined the performance of the Work Ability Index in predicting health-related exit and absence from work, work participation, and death among a sample of workers previously receiving sickness absence benefits.MethodsWorkers aged 40–54 years who received sickness absence benefits in 2012 completed the Work Ability Index in 2013. Outcomes were extracted from administrative data records covering the period until the end of 2016.ResultsData for 2266 participants were included (mean age: 47.9 years; 54.4% women). Maximum follow-up was 43 months. In terms of work ability, 38.4% had good scores, 38.2% moderate scores, and 23.4% poor scores. Fully adjusted analyses showed an increased risk of a disability pension in workers with poor (HR = 12.98; 95% CI 5.81–28.99) and moderate Work Ability Index scores (HR = 3.17; 95% CI 1.36–7.38) compared to workers with good or excellent scores. The risk of a rehabilitation measure was also significantly increased for workers with poor and moderate scores. In addition, poor scores were prospectively associated with a longer duration of sickness absence and unemployment benefits, and fewer employment days and less income from regular employment. Those with poor Work Ability Index scores also had a significantly increased risk of premature death.ConclusionsThe Work Ability Index is a potential tool to identify individuals with previous long-term sickness absence having an increased risk of health-related exit and absence from work and poor work participation outcomes.

Does unemployment benefit duration affect inflows into unemployment? The impact of a law change for older workers

Abstract This article examines whether changes in the potential duration of unemployment benefits influence the entry of older workers into unemployment insurance. The analysis is based on a law change to the benefit rules which occurred in Spain in July 2012, when the eligible age for an extended benefit to older workers was raised from 52 to 55, and on data from the administrative records of the Spanish Public Employment Service. We analyse empirically the changes in the age pattern of inflows intro unemployment insurance before and after the reform, on the one hand, and the effect of the legal change on the age at the date of unemployment benefit admission, on the other hand. Our findings suggest that reducing the potential benefits duration affects the pattern of admissions, transferring entries to higher ages, and that the age at which older workers begin to receive unemployment insurance benefits increases by between one and three months for certain categories of workers.

The effects of unemployment benefit duration: Evidence from residual benefit duration

We examine the effects of unemployment benefit duration in Finland. Although the maximum duration is the same for all unemployed, potential benefit duration at the beginning of unemployment spells varies, because only claimants with sufficient work history qualify for a new benefit period, whereas others may be entitled to residual benefits from the previous spell. Part of this variation is exogenous due to a reform that reduced the minimum number of employment weeks required for a new benefit period. Using a fuzzy difference-in-differences approach we estimate that one extra week of benefits increases expected unemployment duration by 0.16 weeks. A longer benefit period also increases the expected wage and duration of the next job. The relative importance of the match-quality effect is economically significant when the fiscal impacts of benefit duration changes are considered.

Child Maltreatment, Unemployment, and Safety Nets

This paper studies the impact of unemployment on child abuse and neglect between 2004 and 2012 in the United States, by using unique administrative data on every reported incident of child maltreatment made to the state Child Protective Services for nearly every county. We identify the effect of county-level unemployment rates using an industry shift-share instrument which we create by interacting initial county industry shares and national industry unemployment rates. We estimate a large positive effect of unemployment on child neglect. We show that this result captures an impact on the actual incidence of neglect and not reporting behaviour, is not only driven by the manufacturing sector which explains most of the variation in our shift-share instrument, and is robust to alternative instruments. We find indication for a direct income channel: higher unemployment leads to a decrease in real expenditure on basic goods, like food and beverages. We further support this evidence by showing that the effect of unemployment on neglect is significantly smaller in states that introduced longer extensions to the duration of unemployment benefits following the onset of the Great Recession.

Unemployment Benefit Duration and Startup Success

Despite the importance of business creation for the economy and a relevant share of new firms being started out of unemployment, most research has focused on analyzing the effect of unemployment insurance (UI) policies on reemployment outcomes that ignore self-employment. In this paper, we assess how UI benefit duration affects the motivation for creating a startup while unemployed and the subsequent firms’ success. To do so, we create a comprehensive dataset on founders in Germany that links administrative social insurance with survey data. Exploiting reform- and age-based exogenous variations in potential benefit duration (PBD) within the German UI system, we find that longer PBD leads to longer actual unemployment duration for those becoming self-employed. Furthermore, the UI duration elasticity for these individuals is higher than common estimates for those individuals becoming re-employed. With increasing unemployment benefit duration, the founders’ outcomes in terms of self-assessed motivation, sales, and employment growth lessen. This overall causal effect of PBD can be rationalized with a mix of composition and individual-level duration effects. Therefore, our findings suggest that it is important to consider the fiscal externality of UI on startup success when it comes to the (optimal) design of UI systems.

Labor Market Institutions and Performance Economic Within Trial Labor Market Models: Flexibility, Rigidity, and Flexicurity

The purpose of this article is to identify economic performance through three labor market models (flexibility, rigidity, and flexicurity) that result from the effect of the labor market regulation. After conducting a comparative analysis of the flexibility, rigidity, and flexicurity models of the labor market using a feasible generalized least squares (FGLS) applied to 18 organisation for economic co-operation and development (OECD) countries for the period between 2005 and 2013, we reached the following results. First, the effect of the labor market regulation on the unemployment rate appears to be particularly important for demographic groups (women and young people) on the flexible labor market. The union density and bargaining coverage seem to have the best results in the unemployment rate on the flexible market. More coordinated collective bargaining appears to reduce unemployment on the rigid labor market compared with the flexible one. However, our results are opposed to the neoclassical assertions which suggest that women are excluded from the permanent employment when a strict employment protection legislation (EPL) is excised. We also show that the replacement rate, the duration of unemployment benefits, the active labor market policies, permanent immigration inflows, and the tax wedge seem to have the best results on the flexible labor market, while the other variables have mixed effects on the different models of the labor market. These findings can provide policy makers and regulators with a better understanding of the performance of the flexible labor market and its behavior in the face of labor market institutions and adverse economic shocks. In fact, the government should liberalize strict labor laws.

Does extended unemployment benefit duration ameliorate the negative employment effects of job loss?

We study the effect of job displacement due to bankruptcies on earnings and employment prospects of displaced workers and analyse whether extended potential unemployment benefit duration (PBD) ameliorates the negative consequences of job loss. Using German administrative linked employer-employee data, we find that job loss has long-lasting negative effects on earnings and employment. Displaced workers also more often end up in irregular employment relationships (part-time, marginal part-time employment, and temporary agency work) than their non-displaced counterparts. Applying a regression discontinuity approach that exploits a three months PBD extension at the age threshold of 50 we find hardly any effects of longer PBD on labour market outcomes of displaced workers.

DO UNEMPLOYMENT BENEFITS AFFECT ON‐THE‐JOB SEARCH? EVIDENCE FROM LABOR TURNOVER BEFORE ESTABLISHMENT CLOSURES

We develop a job search model that predicts that potential job losers would reduce on‐the‐job search (OTJS) effort and job‐to‐job transitions before layoffs, in response to an increase in the potential duration of unemployment benefits (UB). To test this prediction, we exploit changes in the maximum potential duration of benefits in Germany to analyze how it affected labor turnover before establishment closings. The evidence supports the model prediction that workers with longer potential benefit duration are more likely to remain with their establishments until closure and to enter nonemployment. These findings indicate that the effects of UB on the OTJS decisions of potential job losers should be considered in the optimal design of the parameters of unemployment insurance systems. (JEL J63, J64, J65)