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Unemployment, Welfare Benefits and the Financial Incentive to Work

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  • Richard Layte

    (The Economic and Social Research Institute)

  • Tim Callan

    (The Economic and Social Research Institute)

Abstract

Although disincentive effects associated with payments have been regulaly found in research in the US and UK, the UK research is disputed and effects have been notable by their absence in studies from Continental Europe. However, much of this research has been hindered by inadequate models of the structure of payments and estimates of in work incomes. In this paper we explicitly model the structue of benefit payments over time and estimate in work income using the SWITCH tax/benefit model. We find that the hazard of exit from unemployment is negatively related to unemployment payments, but distinctive effects appear to influence only those receiving Unemployment Benefts (UB) and are small when compared internationally. Moreover, the exit rate increases for this group as exhaustion approaches at 15 months duration. We find no significant distinctive effects amongst those receiving Unemployment Assistance (UA).

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Bibliographic Info

Article provided by Economic and Social Studies in its journal Economic and Social Review.

Volume (Year): 32 (2001)
Issue (Month): 2 ()
Pages: 103-129

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Handle: RePEc:eso:journl:v:32:y:2001:i:2:p:103-129

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References

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  1. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  2. Bratberg, Espen & Vaage, Kjell, 2000. "Spell durations with long unemployment insurance periods," Labour Economics, Elsevier, vol. 7(2), pages 153-180, March.
  3. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 361-81, Oct.-Dec..
  4. Atkinson, A. B. & Gomulka, J. & Micklewright, J. & Rau, N., 1984. "Unemployment benefit, duration and incentives in Britain : How robust is the evidence?," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 3-26.
  5. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, vol. 105(429), pages 321-32, March.
  6. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  7. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  8. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
  9. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February.
  10. Bruce K. Fallick, 1989. "Unemployment Insurance and the Rate of Re-Employment of Displaced Workers," UCLA Economics Working Papers 550, UCLA Department of Economics.
  11. Nickell, S J, 1979. "The Effect of Unemployment and Related Benefits on the Duration of Unemployment," Economic Journal, Royal Economic Society, vol. 89(353), pages 34-49, March.
  12. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
  13. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  14. Stephen P. Jenkins & Carlos GarcĂ­a-Serrano, 2000. "Re-Employment Probabilities for Spanish Men: What Role Does the Unemployment Benefit System Play?," Discussion Papers of DIW Berlin 216, DIW Berlin, German Institute for Economic Research.
  15. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-38, February.
  16. Narendranathan, Wiji & Nickell, Stephen, 1985. "Modelling the process of job search," Journal of Econometrics, Elsevier, vol. 28(1), pages 29-49, April.
  17. Hujer, Reinhard & Schneider, Hilmar, 1989. "The analysis of labor market mobility using panel data," European Economic Review, Elsevier, vol. 33(2-3), pages 530-536, March.
  18. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
  19. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
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Cited by:
  1. Brendan Walsh, 2002. "When Unemployment Disappears - Ireland in the 1990s," Working Papers 200229, School Of Economics, University College Dublin.
  2. Brendan Walsh, 2003. "When Unemployment Disappears: Ireland in the 1990s," CESifo Working Paper Series 856, CESifo Group Munich.
  3. repec:esr:chaptr:jacb200207 is not listed on IDEAS
  4. Layte, Richard & O'Connell, Philip J., 2005. "Profiling the Unemployed: An Analysis of the Galway and Waterford Live-Register Surveys," Research Series, Economic and Social Research Institute (ESRI), number PRS55.
  5. Brendan Walsh, 2004. "The Transformation of the Irish Labour Market - 1980-2003," Working Papers 200412, School Of Economics, University College Dublin.
  6. Callan, Tim & Keeney, Mary J. & Walsh, John R., 2002. "The Distributive Impact of Budgetary Policy: A Medium-Term View," Papers BP2003/3, Economic and Social Research Institute (ESRI).

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