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Can unemployment benefit cuts improve employment and earnings?

Author

Listed:
  • Lionel Cottier

    (University of Lausanne)

  • Kathrin Degen

    (AMOSA Labor Market Observatory)

  • Rafael Lalive

    (University of Lausanne)

Abstract

We study how a reduction in potential benefit duration (PBD) affects employment and earnings of job seekers before and after unemployment benefits exhaust. Reducing PBD induces job seekers to become less selective and accept jobs earlier, which can worsen or improve labor market outcomes. We study a 2003 reform that reduces PBD from 24 to 18 months for job seekers younger than 55 years in Switzerland. Using older job seekers as a control group, we find that reducing PBD increases employment and earnings even after unemployment benefits have run out. Employment and earnings increase particularly strongly for job seekers who previously worked in industries with high R&D expenditures, industries where job seekers’ skills can depreciate rapidly.

Suggested Citation

  • Lionel Cottier & Kathrin Degen & Rafael Lalive, 2020. "Can unemployment benefit cuts improve employment and earnings?," Empirical Economics, Springer, vol. 59(2), pages 659-699, August.
    • Handle: RePEc:spr:empeco:v:59:y:2020:i:2:d:10.1007_s00181-019-01677-6
    DOI: 10.1007/s00181-019-01677-6
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    2. Wunsch, Conny & Zabrodina, Véra, 2023. "Unemployment Insurance with Response Heterogeneity," IZA Discussion Papers 16509, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Potential benefit duration; Unemployment duration; Older workers; Earnings and employment;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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