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

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  • Jan Boone

    ()

  • Jan Ours

    ()

Abstract

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. Copyright The Author(s) 2012

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File URL: http://hdl.handle.net/10.1007/s10645-012-9187-8
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Bibliographic Info

Article provided by Springer in its journal De Economist.

Volume (Year): 160 (2012)
Issue (Month): 4 (December)
Pages: 413-438

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Handle: RePEc:kap:decono:v:160:y:2012:i:4:p:413-438

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Web page: http://www.springerlink.com/link.asp?id=100260

Related research

Keywords: Unemployment benefits; Spikes; J22; I31; J16;

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References

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  1. Lawrence Katz & Bruce Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," Working Papers 621, Princeton University, Department of Economics, Industrial Relations Section..
  2. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  3. David Card & Phillip B. Levine, 1998. "Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program," NBER Working Papers 6714, National Bureau of Economic Research, Inc.
  4. Rafael Lalive & Jan Van Ours & Josef Zweim�ller, 2006. "How Changes in Financial Incentives Affect the Duration of Unemployment," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1009-1038.
  5. 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.
  6. David Card & Raj Chetty & Andrea Weber, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," NBER Working Papers 12893, National Bureau of Economic Research, Inc.
  7. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum 242, Tilburg University, Faculty of Economics and Business Administration.
  8. van Ours, Jan C. & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," IZA Discussion Papers 2171, Institute for the Study of Labor (IZA).
  9. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November.
  10. van Ours, Jan C. & Vodopivec, Milan, 2008. "Does reducing unemployment insurance generosity reduce job match quality?," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 684-695, April.
  11. Vodopivec, Milan, 1995. "Unemployment insurance and duration of unemployment : evidence from Slovenia's transition," Policy Research Working Paper Series 1552, The World Bank.
  12. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
  13. Moffitt, Robert & Nicholson, Walter, 1982. "The Effect of Unemployment Insurance on Unemployment: The Case of Federal Supplemental Benefits," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 1-11, February.
  14. Adamchik, Vera, 1999. " The Effect of Unemployment Benefits on the Probability of Re-employment in Poland," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(1), pages 95-108, February.
  15. 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.
  16. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  17. Carling, Kenneth & Edin, Per-Anders & Harkman, Anders & Holmlund, Bertil, 1996. "Unemployment duration, unemployment benefits, and labor market programs in Sweden," Journal of Public Economics, Elsevier, vol. 59(3), pages 313-334, March.
  18. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 351-378, April.
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Citations

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Cited by:
  1. Rebollo-Sanz, Yolanda, 2012. "Unemployment insurance and job turnover in Spain," Labour Economics, Elsevier, vol. 19(3), pages 403-426.
  2. Caliendo, Marco & Tatsiramos, Konstantinos & Uhlendorff, Arne, 2009. "Benefit Duration, Unemployment Duration and Job Match Quality: A Regression-Discontinuity Approach," IZA Discussion Papers 4670, Institute for the Study of Labor (IZA).
  3. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, vol. 19(6), pages 888-897.
  4. Rafael Lalive & Analía Schlosser & Andreas Steinhauer & Josef Zweimüller, 2011. "Parental Leave and Mothers' Careers: The Relative Importance of Job Protection and Cash Benefits," NRN working papers 2011-14, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  5. Bart COCKX & Muriel DEJEMEPPE, 2010. "The Threat of Monitoring Job Search. A Discontinuity Design," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010041, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  6. Kahn, Lawrence M., 2012. "Temporary jobs and job search effort in Europe," Labour Economics, Elsevier, vol. 19(1), pages 113-128.
  7. Herwig Immervoll, 2010. "Minimum Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges," OECD Social, Employment and Migration Working Papers 100, OECD Publishing.

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