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How Changes in Financial Incentives Affect the Duration of Unemployment

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Author Info

  • Lalive, R.
  • Ours, J.C. van
  • Zweimüller, J.

    (Tilburg University, Center for Economic Research)

Abstract

This paper studies how changes in the two key parameters of unemployment insurance - the benefit replacement rate (RR) and the potential duration of benefits (PBD) - affect the duration of unemployment.In 1989, the Austrian government made unemployment insurance more generous by changing, simultaneously, the maximum duration of regular unemployment benefits and the earnings replacement ratio.We find that increasing the replacement ratio has much weaker disincentive effects than increasing the maximum duration of benefits.We use these results to split up the total costs to unemployment insurance funds into costs due to changes in the unemployment insurance system and costs due to behavioral responses of unemployed workers.Results indicate that costs due to behavioral responses are substantial.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2004-86.

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Date of creation: 2004
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Handle: RePEc:dgr:kubcen:200486

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Web page: http://center.uvt.nl

Related research

Keywords: incentives; unemployment; unemployment insurance; policy;

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  13. 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.
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  16. Winter-Ebmer, Rudolf, 1998. "Potential Unemployment Benefit Duration and Spell Length: Lessons from a Quasi-Experiment in Austria," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(1), pages 33-45, February.
  17. 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.
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  21. 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.
  22. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  23. John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
  24. Cockx, Bart & Ries, Jean, 2004. "The Exhaustion of Unemployment Benefits in Belgium: Does it Enhance the Probability of Employment?," IZA Discussion Papers 1177, Institute for the Study of Labor (IZA).
  25. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum 242, Tilburg University, Faculty of Economics and Business Administration.
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