Non-employment Duration Research Articles

AGE DISCONTINUITY AND NONEMPLOYMENT BENEFIT POLICY EVALUATION THROUGH THE LENS OF JOB SEARCH THEORY

AbstractRecent papers use regression discontinuity designs (RDDs) based on age discontinuity to evaluate social assistance (SA) and unemployment insurance (UI) extension policies. Job search theory predicts that such designs generate biased estimates of the policy‐relevant treatment effect. Owing to market frictions, people below the age threshold modify their search behavior in expectation of future eligibility. We use a job search model to quantify the biases on various datasets in the literature. The impacts of SA benefits on employment are underestimated, whereas those of UI extensions on nonemployment duration are overestimated. The article provides insights for RDD evaluations of age‐discontinuous policies.

Wealth, Portfolios, and Nonemployment Duration

AbstractWe use administrative data on individual balance sheets in Denmark to document how an individual's financial position affects job search behavior. We look at the effect of wealth at the entry into unemployment on the exit rate from unemployment as well as the effect on the subsequent match quality. The detailed data allow us not only to distinguish between liquid and illiquid parts, but also to decompose each of them into assets and liabilities. The decomposition of wealth into these four components is key to understanding how wealth affects job finding rates. In particular, we show that liquid assets reduce the probability of becoming reemployed, but we do not see an effect of liquid liabilities or the illiquid wealth components, while interest payments speed up reemployment. The results on subsequent match quality in form of job duration and wages are mixed.

The Costs of Job Displacement over the Business Cycle and Its Sources: Evidence from Germany

We document the sources behind the costs of job loss over the business cycle using administrative data from Germany. Losses in annual earnings after displacement are large, persistent, and highly cyclical, nearly doubling in size during downturns. A large part of the long-term earnings losses and their cyclicality is driven by declines in wages. Key to these long-lasting wage declines and their cyclicality are changes in employer characteristics, as displaced workers switch to lower-paying firms. These losses increase with duration of nonemployment. Changes in characteristics of displaced workers or displacing firms, and other post-job loss career outcomes explain little of the cyclicality. (JEL E24, E32, J31, J63, J64, J65)

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

Abstract We exploit an unanticipated labor market reform to estimate the effects of pro-cyclical changes in long-term unemployment assistance (UA). In July 2012, Spain raised the minimum age to receive unlimited-duration UA from 52 to 55. Using a difference-in-differences design, we document that shorter benefits caused (i) shorter non-employment duration, especially among younger workers; (ii) higher labor force exit and other programs' take-up, especially among older workers; (iii) lower wages upon re-employment. The reform induced moderate government savings. Our results highlight the importance of considering the interplay with labor market conditions when designing long-term benefit schedules that affect workers close to retirement.

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.

Mandatory Advance Notice of Layoff: Evidence and Efficiency Considerations

We investigate a prevalent, but understudied, employment protection policy: mandatory advance notice (MN), requiring employers to notify employees of forthcoming layoffs. MN increases future production, as notified workers search on the job, but reduces current production as they supply less effort. Our theoretical model captures this trade-off and predicts that MN improves production efficiency by increasing information sharing, whereas large production losses can be avoided by worker-firm agreements on side-payments â?? severance pay â?? in lieu of MN. We provide evidence of such severance increases in response to an extension of MN using novel Swedish administrative data. We then estimate the production gain of MN: extending the MN period leads to shorter non-employment duration and higher reemployment wages, plausibly driven by on-the-job search. Using variation in notice duration across firms, we estimate the productivity loss of notice. The estimates of benefits and costs suggest that MN has a positive net impact on production, offering an empirically-grounded efficiency argument for mandating notice.

Mandatory Advance Notice of Layoff: Evidence and Efficiency Considerations

We investigate a prevalent, but understudied, employment protection policy: mandatory advance notice (MN), requiring employers to notify employees of forthcoming layoffs. MN increases future production, as notified workers search on the job, but reduces current production as they supply less effort. Our theoretical model captures this trade-off and predicts that MN improves production efficiency by increasing information sharing, whereas large production losses can be avoided by worker-firm agreements on side-payments – severance pay – in lieu of MN. We provide evidence of such severance increases in response to an extension of MN using novel Swedish administrative data. We then estimate the production gain of MN: extending the MN period leads to shorter non-employment duration and higher reemployment wages, plausibly driven by on-the-job search. Using variation in notice duration across firms, we estimate the productivity loss of notice. The estimates of benefits and costs suggest that MN has a positive net impact on production, offering an empirically-grounded efficiency argument for mandating notice.

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.

Front-Loading the Unemployment Benefit: An Empirical Assessment

We estimate the effect of front-loading unemployment benefit payments on nonemployment duration and reemployment wages. Exploiting a sharp change in the path of benefits for those who claimed unemployment benefits after November 1, 2005 in Hungary, we show that nonemployment duration fell by two weeks, while reemployment wages rose by 1.4 percent as a result of front-loading. We show that these behavioral responses were large enough to offset the mechanical cost increase of the unemployment insurance. We argue that our results indicate that benefit front-loading was a Pareto improving policy reform as both unemployed and employed workers were made better off. (JEL D91, J31, J64, J65)

The Effects of Extended Unemployment Benefits: Evidence from a Regression Discontinuity Design

This paper uses administrative unemployment insurance (UI) data and an unemployment benefits extension for workers aged 45 or older in Taiwan to estimate the effects of the extended benefits on unemployment duration and reemployment outcomes. Using the regression discontinuity design, we estimate that a 90-day increase in potential duration increases the insured duration by 57 days and the non-employment duration by 41 days. While we do not find wage gains for overall UI recipients around 45 years old, the benefits extension is estimated to increase the reemployment wage for the lower-wage workers who are most likely to exhaust their benefits. Our findings suggest that the liquidity constraints at the exhaustion point might play an important role in the effect of a benefit extension on job match quality.

New Approaches to the Study of Long-Term Non-Employment Duration in Italy, Germany and Spain

This study proposes a new approach to the analysis of non-employment and its duration in Germany, Italy and Spain using administrative longitudinal databases. Non-employment includes the discouraged unemployed not entitled to draw unemployment benefits and the long-term inactive. Many of the non-employed individuals will never return to the official labour market. We estimate the magnitude and duration of non-employment, applying the survival methodology developed in recent years to deal with ‘workforce disposal’. Long-term non-employment (LTNE) may lead to dramatic changes in individual lifestyles, family and childbearing projects, levels of poverty and welfare at large.

The effect of the potential duration of unemployment benefits on unemployment exits to work and match quality in France

Recent empirical literature finds very limited average effects of generous unemployment benefits on match quality. This study examines those effects in a setting where they could be large. We focus on workers with low employability and evaluate the impact of a large increase in potential benefit duration from 7 to 15months. Our regression discontinuity design does not elicit significant short-term or medium-term effects on either employment duration or wages, whereas we find large positive effects on unemployment and non-employment duration.

The Effect of Unemployment Benefits and Nonemployment Durations on Wages

We estimate that unemployment insurance (UI) extensions reduce reemployment wages using sharp age discontinuities in UI eligibility in Germany. We show this effect combines two key policy parameters: the effect of UI on reservation wages and the effect of nonemployment durations on wage offers. Our framework implies if UI extensions do not affect wages conditional on duration, then reservation wages do not bind. We derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects. The effect of UI on wages we find arises mainly from substantial negative nonemployment duration effects. (JEL J31, J64, J65)

The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years

One goal of extending the duration of unemployment insurance (UI) in recessions is to increase UI coverage in the face of longer unemployment spells. Although it is a common concern that such extensions may themselves raise nonemployment durations, it is not known how recessions would affect the magnitude of this moral hazard. To obtain causal estimates of the differential effects of UI in booms and recessions, this article exploits the fact that in Germany, potential UI benefit duration is a function of exact age which is itself invariant over the business cycle. We implement a regression discontinuity design separately for 20 years and correlate our estimates with measures of the business cycle. We find that the nonemployment effects of a month of additional UI benefits are, at best, somewhat declining in recessions. Yet the UI exhaustion rate, and therefore the additional coverage provided by UI extensions, rises substantially during a downturn. The ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by UI extensions. Hence, our results imply that the effective moral hazard effect of UI extensions is significantly lower in recessions than in booms. Using a model of job search with liquidity constraints, we also find that in the absence of market-wide effects, the net social benefits from UI extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of UI durations, or as a declining function of our measure of effective moral hazard. Copyright 2012, Oxford University Press.

Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway.

We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months' earnings at the median lowers the fraction re-employed after a year by six percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which supports the view that the severance pay effect should be interpreted as evidence of liquidity constraints. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.

Cash-on-Hand and the Duration of Job Search: Quasi-Experimental Evidence from Norway

We identify the causal effect of lump-sum severance payments on non-employment duration in Norway by exploiting a discontinuity in eligibility at age 50. We find that a severance payment worth 1.2 months' earnings at the median lowers the fraction re-employed after a year by six percentage points. Data on household wealth enable us to verify that the effect is decreasing in prior wealth, which supports the view that the severance pay effect should be interpreted as evidence of liquidity constraints. Finding liquidity constraints in Norway, despite its equitable wealth distribution and generous welfare state, means they are likely to exist also in other countries.

Unemployment Durations in West Germany Before and After the Reform of the Unemployment Compensation System during the 1980s

AbstractThis paper analyzes empirically the distribution of unemployment durations in West Germany during the 1980s and 1990s. It therefore covers periods before and after the changes during the mid-1980s in the maximum entitlement periods for unemployment benefits for older unemployed. The analysis is based on the IAB employment subsample containing administrative data for about 500,000 individuals. Since these data only partly reveal the unemployment duration in an economic sense, we use a narrow and a wide proxy for unemployment. Our empirical analysis finds significant changes in the distribution of non-employment durations for older unemployed. At the same time, the distribution of unemployment durations between jobs remained unchanged after the reforms. Our findings clearly show that many firms and workers used the more beneficial laws as a part of early retirement packages. Surprisingly, for those workers who found and accepted a new job, we do not observe a prolongation of their search periods to a sizeable extent.

Passend werk na werkloosheid of inactiviteit

The chance of getting a (matching) job after a period of non-employment The chance of getting a (matching) job after a period of non-employment In this article, we examine the relationship between the duration of non-employment spells and the probability of finding a job that matches the acquired educational level. We focus on persons who attained upper secondary vocational education and higher education. We use data from the Dutch Labour Force Survey (LFS) in the period 2003-2008. The probability of finding a job decreases with the duration of not working. For people with upper secondary and higher vocational education, the probability of finding a job that matches the acquired level of education also decreases with non-employment duration. For university graduates, we do not find a relationship between the duration of non-employment spells and the subsequent job level.

Convergence and determinants of non-employment durations in Eastern and Western Germany

Since monetary union between eastern and western Germany in 1990, non-employment spells have been shorter in the east, and there has been no convergence. Analysis of the German Socio-Economic Panel for 1990–2000 indicates that there is some convergence in the determinants of durations, owing to increasing age differentials for eastern men, and an increasing influence of children for eastern women. The latter has contributed to the decline in female employment. Skill affects non-employment duration less than it affects employment duration, and the gender gap in eastern non-employment duration cannot be characterized as a skills gap.

Unemployment Durations in West Germany Before and After the Reform of the Unemployment Compensation System During the 1980s

This paper empirically analyzes the distribution of unemployment durations in West Germany before and after the changes during the mid 1980s in the maximum entitlement periods for unemployment benefits for elderly unemployed. The analysis is based on the comprehensive IAB employment subsample containing register panel data for about 500,000 individuals in West Germany. We introduce two proxies for unemployment, since the data do not involve a precise economic definition of unemployment. We provide a theoretical analysis of the link between the durations of nonemployment and of unemployment durations between jobs. In our empirical analysis we find significant changes in the distributions of nonemployment durations for older unemployed individuals. At the same time, the distribution of unemployment durations between jobs did not change in response to the reforms. Our findings are consistent with an interpretation that many firms and workers used the more beneficial laws as a part of early retirement packages but those workers who were still looking for a job did not reduce their search effort in response to the extension of the maximum entitlement periods. This interpretation is consistent with a simulation of our theoretical model under economically plausible assumptions.