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Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

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  • Andrey Launov
  • Klaus Wälde

Abstract

The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment benefits displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expression for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment benefit reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we find that both employed and unemployed workers gain (the latter from an intertemporal perspective). The reason is the rise in the net wage caused by more vacancies per unemployed worker.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3069.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3069

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Keywords: non-stationary unemployment benefits; endogenous effort; matching model; structural estimation; Semi-Markov process;

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References

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Citations

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Cited by:
  1. B. Cockx & M. Dejemeppe & A. Launov & B. Van Der Linden, 2011. "Monitoring, Sanctions and Front-Loading of Job Search in a Non-Stationary Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/761, Ghent University, Faculty of Economics and Business Administration.
  2. Matthias S. Hertweck & Oliver Sigrist, 2013. "The Aggregate Effects of the Hartz Reforms in Germany," Working papers 2013/01, Faculty of Business and Economics - University of Basel.
  3. S. Nuray Akin & Brennan Platt, 2012. "Running Out of Time: Limited Unemployment Benefits and Reservation Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 149-170, April.
  4. Christian Bayer & Klaus Waelde, 2011. "Describing the Dynamics of Distributions in Search and Matching Models by Fokker-Planck Equations," Working Papers 1110, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 21 Jul 2011.
  5. Bräuninger, Michael & Michaelis, Jochen & Sode, Madlen, 2013. "10 Jahre Hartz-Reformen," HWWI Policy Papers 73, Hamburg Institute of International Economics (HWWI).
  6. Christian Bayer & Klaus Wälde, 2010. "Matching and Saving in Continuous Time: Theory," CESifo Working Paper Series 3026, CESifo Group Munich.
  7. Krebs, Tom & Scheffel, Martin, 2010. "A macroeconomic model for the evaluation of labor market reforms," ZEW Discussion Papers 10-050, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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