Unemployment Insurance Generosity Research Articles

Unemployment and Subsequent Employment Stability: Does Labour Market Policy Matter?

This paper analyses the effect of unemployment insurance generosity and active labour market policy on reemployment stability in Europe. Using EU-SILC and OECD data, we conduct discrete time survival analyses with shared frailty specification to identify policy effects at the micro and macro level. Empirical evidence suggests that unemployment benefit receipt is associated with longer reemployment duration at the individual level. Furthermore, countries with more generous unemployment insurance and higher ALMP spending show a more sustainable reintegration record of previously unemployed workers. These results point to a policy trade-off between the well-confirmed disincentive and locking-in effect of unemployment benefits and ALMP programmes on the one hand, and their positive effect on reemployment stability on the other hand.

Should the Specificity of Human Capital Affect Unemployment Insurance Generosity?

This article examines the argument whereby the more specific the human capital of the workforce is, the less such individuals can expect to receive in benefits if and when they experience unemployment. We present a theoretical model for understanding how the composition of human capital determines the level of unemployment benefits. This model shows that, depending on the scenario chosen for the management of the insurance fund, the proportion of individuals with specific human capital can lead to the replacement rate of optimal unemployment compensation rising or falling.

The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model

In this paper we use a dynamic structural life-cycle model to analyze the employment, fiscal and welfare effects induced by unemployment insurance. The model features a detailed specification of the tax and transfer system, including unemployment insurance benefits which depend on an individual’s employment and earnings history. The model also captures the endogenous accumulation of experience which impacts on future wages, job arrivals and job separations. For better identification of the structural parameters we exploit a quasinatural experiment, namely reductions over time in the entitlement period for unemployment insurance benefits which varied by age and experience. The results show that a policy cut in the generosity of unemployment insurance operationalized as a reduction in the entitlement period generates a larger increase in employment and yields a bigger fiscal saving than a cut operationalized as a reduction in the replacement ratio. Welfare analysis of revenue neutral tax and transfer reforms also favors a reduction in the entitlement period.

The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model

In this paper we use a dynamic structural life-cycle model to analyze the employment, fiscal and welfare effects induced by unemployment insurance. The model features a detailed specification of the tax and transfer system, including unemployment insurance benefits which depend on an individual's employment and earnings history. The model also captures the endogenous accumulation of experience which impacts on future wages, job arrivals and job separations. For better identification of the structural parameters we exploit a quasi-natural experiment, namely reductions over time in the entitlement period for unemployment insurance benefits which varied by age and experience. The results show that a policy cut in the generosity of unemployment insurance operationalized as a reduction in the entitlement period generates a larger increase in employment and yields a bigger fiscal saving than a cut operationalized as a reduction in the replacement ratio. Welfare analysis of revenue neutral tax and transfer reforms also favors a reduction in the entitlement period.

Unemployment Insurance Generosity: A Transatlantic Comparison

The goal of this paper is to establish if unemployment insurance policies are more generous in Europe than in the United States, and by how much. We take the examples of France and one particular American state, Ohio, and use the methodology of Pallage, Scruggs and Zimmermann (2008) to find a unique parameter value for each region that fully characterizes the generosity of the system. These two values can then be used in structural models that compare the regions, for example to explain the differences in unemployment rates.

Does reducing unemployment insurance generosity reduce job match quality?

This paper analyzes how a change in Slovenia's unemployment insurance law affected the quality of jobs workers found after periods of unemployment. Taking advantage the “natural experiment” we show through difference-in-differences estimation results that reducing the potential duration of unemployment benefits had no detectable effect on wages, on the probability of securing a permanent rather than a temporary job, or on the duration of the post-unemployment job.

The impact of unemployment insurance generosity on match quality distribution

This paper investigates the impact of unemployment insurance (UI) generosity on the distribution of match tenure. We show that more generous UI increases expected tenure, reducing the mass of the lower tail of match duration and increasing the duration of matches available. This impact is differentiated across education levels, with the larger benefits accruing to the less educated.

The Impact of Unemployment Insurance on the Job Match Quality: A Quantile Regression Approach

This paper investigates the impact of unemployment insurance (UI) generosity on the distribution of the match starting wage and tenure. We show evidence of a positive shift in the location (mean) and scale (variance) of both variables: more generous UI increases expected starting wage and tenure, and this impact is greater at the highest quantiles. In this sense, more generous UI reduces the thickness of the lower tail of match quality (shorter and lower paid jobs), and, at the same time, increases the quality of matches available to all workers (the location effect on match duration and wages). These results can be seen as favorable evidence of match quality gains from UI generosity.

Heterogeneous labor markets and generosity towards the unemployed: an international perspective

We investigate the key differences in the distributions of European, Canadian and US labor forces to explain cross-country differences in unemployment insurance generosity in a dynamic model with indivisible labor and with constraints on borrowing. Agents differ in education leading to country-specific differences in employment probabilities and income prospects. Moral hazard is allowed to vary across countries so that it is a free parameter in our specification. We derive the degree of generosity of unemployment insurance favored by the majority of the population and contrast this with that chosen by a social planner. Calibrating the model using data allows us to predict moral hazard within each country, even though this is an otherwise unmeasurable statistic. Journal of Comparative Economics 33 (1) (2005) 88–106.

Why Did the Average Duration of Unemployment Become So Much Longer?

This paper examines the causes of the observed increase in the average duration of unemployment over the past thirty years. First we analyze whether changes in the demographic composition of the U.S. labor force, particularly the age and gender composition, can explain this increase. We then consider the contribution of institutional changes, such as the change in the generosity and coverage of unemployment insurance. We find that changes in the composition of the labor force and institutional changes can only partially account for the longer duration of unemployment. We construct a job search model and calibrate it to U.S. data. The results indicate that more than 70 percent of the increase in the duration of unemployment over the past thirty years can be attributed to an increase in within-group wage inequality.

Technical Change and Unemployment: Policy Responses and Distributional Considerations

We analyze some macroeconomic implications that follow from the fact that people tend to consume higher-quality goods as their incomes rise. The model involves two sectors: one producing a homogeneous good and the other producing a product with variable levels of quality. Both sectors use skilled and unskilled labour, but higher quality varieties of the differentiated good are more skilled-labour intensive. The skilled-tounskilled wage ratio is fixed at a level sufficiently low that some unskilled workersremain unemployed. We show that uniform (across sectors), Hicks-neutral technological progress must increase the unemployment rate. We then discuss a number of policy responses (tax cuts, direct government employment of the unskilled, employment subsidies to firms for hiring the unskilled, increased generosity of unemployment insurance) under different scenarios concerning how the government finances these initiatives. Political economy consequences are emphasized, as we assess each policy’s chance of receiving political support from skilled workers. We conclude that a subsidy for the employment of unskilled workers, financed by a rise in the employer payroll tax rate associated with skilled workers is a viable policy option.

Supply side hysteresis: the case of the Canadian unemployment insurance system

This paper presents results from a 1971 natural experiment carried out by the Canadian government on the unemployment insurance system. At that time, the generosity of the UI system was increased dramatically. We find some evidence that the propensity to collect UI increases with a first-time exposure to the new UI system. Hence, as more individuals experience unemployment, their lifetime use of the system increases. This supply side hysteresis effect may explain why unemployment has steadily increased over the 1972–1992 period, even though the generosity of unemployment insurance did not.

Experience rating and the generosity of unemployment insurance: Effects on county and metropolitan unemployment rates

I find that state policies affect county and metropolitan area unemployment rates, particularly their policies with respect to unemployment compensation. A generous compensation system is associated with higher unemployment rates, and greater experience rating is associated with lower rates. I also find that greater unionization is associated with higher unemployment rates. Secular manufacturing growth has a weak negative association with unemployment rates in nonmetropolitan counties, but no association in metropolitan areas.

Deriving natural rates of unemployment for sub-national regions: the case of Canadian provinces

In order to pursue informed stabilization policies, it is vital for policy-markers to have estimates of how much of the total unemployment rate can be classified as cyclical rather than natural unemployment. This paper describes a method for generating regional natural-rate estimates and applies this method to the case of Canadian provinces. Results indicate that unemployment insurance generosity and relative minimum wages play an important role in determining natural unemployment rates in Canadian provinces. One of the enduring characteristics of the Canadian labour market has been substantial and peresistent unemployment rate disparities across provinces. The results of this study indicate that these disparities are primarily explained by differences in provincial values of structural variables such as unemployment generosity and by differences in provincial sensitivities to these structural variables. A furher result is that variation in cyclical unemployment rates is substantially less in the traditio...