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Market Externalities of Large Unemployment Insurance Extension Programs

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  • Rafael Lalive
  • Camille Landais
  • Josef Zweimüller

Abstract

This paper offers quasi experimental evidence of the existence of spillover effects of UI extensions using a unique program that extended unemployment benefits drastically for a subset of workers in selected regions of Austria. We use non-eligible unemployed in treated regions, and a difference-in-difference identification strategy to control for preexisting differences across treated and untreated regions. We uncover the presence of important spillover effects: in treated regions, as the search effort of treated workers plummets, the job finding probability of untreated workers increases, and their average unemployment duration and probability of long term unemployment decrease. These effects are the largest when the program intensity reaches its highest level, then decrease and disappear as the program is scaled down and finally interrupted. We use this evidence to assess the relevance of different assumptions on technology and the wage setting process in equilibrium search and matching models and discuss the policy implications of our results for the EUC extensions in the US.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4413.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4413

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Related research

Keywords: unemployment insurance; benefit extension; market externality; macro effects;

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References

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  1. Bruno Crépon & Esther Duflo & Marc Gurgand & Roland Rathelot & Philippe Zamora, 2012. "Do Labor Market Policies Have Displacement Effects? Evidence from a Clustered Randomized Experiment," NBER Working Papers 18597, National Bureau of Economic Research, Inc.
  2. Lukas Inderbitzin & Stefan Staubli & Josef Zweimüller, 2013. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," Economics working papers 2013-06, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
  4. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment benefits and unemployment in the Great Recession: the role of macro effects," Staff Reports 646, Federal Reserve Bank of New York.
  5. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2011. "Optimal Unemployment Insurance Over the Business Cycle," CEP Discussion Papers dp1078, Centre for Economic Performance, LSE.
  6. Marc FERRACCI & Grégory JOLIVET & Gerard J van den Berg, 2009. "“Treatment Evaluation in the Case of Interaction Within Markets”," Working Papers 2009-22, Centre de Recherche en Economie et Statistique.
  7. Pascal Michaillat, 2010. "Do Matching Frictions Explain Unemployment? Not in Bad Times," CEP Discussion Papers dp1024, Centre for Economic Performance, LSE.
  8. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 143-213.
  9. Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian Social Security Database," NRN working papers 2009-03, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    • Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian social security database," IEW - Working Papers 410, Institute for Empirical Research in Economics - University of Zurich.
  10. Atkinson, A.B., 1987. "Income maintenance and social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 13, pages 779-908 Elsevier.
  11. Johannes F. Schmieder & Till M. von Wachter & Stefan Bender, 2012. "The Long-Term Effects of Unemployment Insurance Extensions on Employment," NBER Working Papers 17814, National Bureau of Economic Research, Inc.
  12. 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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Cited by:
  1. Johannes F. Schmieder & Till M. von Wachter & Stefan Bender, 2013. "The Causal Effect of Unemployment Duration on Wages: Evidence from Unemployment Insurance Extensions," NBER Working Papers 19772, National Bureau of Economic Research, Inc.

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