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Benefit-Entitlement Effects and the Duration of Unemployment: An Ex-ante Evaluation of Recent Labour Market Reforms in Germany

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  • Hendrik Schmitz
  • Viktor Steiner

Abstract

Abstract: We analyse benefit-entitlement effects and the likely impact of the recent reform of the unemployment compensation system on the duration of unemployment in Germany on the basis of a flexible discrete-time hazard rate model estimated on pre-reform data from the German Socioeconomic Panel (SOEP). We find (i) relatively strong benefit-entitlement effects for the unemployed who are eligible to means-tested unemployment assistance after the exhaustion of unemployment benefit, but not for those without such entitlement; (ii) non-monotonic benefit-entitlement effects on hazard rates with pronounce spikes around the month of benefit-exhaustion, and (iii) relatively small marginal effects of the amount of unemployment compensation on the duration of unemployment. Our simulation results show that the recent labour market reform is unlikely to have a major impact on the average duration of unemployment in the population as a whole, but will significantly reduce the level of long-term unemployment among older workers.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 678.

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Length: 26 : Tab. p.
Date of creation: 2007
Date of revision:
Handle: RePEc:diw:diwwpp:dp678

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Keywords: unemployment duration; unemployment insurance; benefit-entitlement effects; German labour market reforms; ex-ante evaluation; hazard rate model;

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References

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  1. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 13(1), pages 88-120, January.
  2. Mortensen, Dale T., 1987. "Job search and labor market analysis," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 15, pages 849-919 Elsevier.
  3. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 29(4), pages 1679-1727, December.
  6. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series, Berkeley Electronic Press 1160, Berkeley Electronic Press.
  7. Fitzenberger, Bernd & Wilke, Ralf A., 2004. "Unemployment Durations in West-Germany Before and After the Reform of the Unemployment Compensation System During the 1980s," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 04-24, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc.
  9. Lawrence Katz & Bruce Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 621, Princeton University, Department of Economics, Industrial Relations Section..
  10. Jürgen Schupp & Gert G. Wagner, 2002. "Maintenance of and Innovation in Long-Term Panel Studies: The Case of the German Socio-Economic Panel (GSOEP)," Discussion Papers of DIW Berlin 276, DIW Berlin, German Institute for Economic Research.
  11. 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.
  12. Steiner, Viktor, 2001. " Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 63(1), pages 91-113, February.
  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. Steiner, Viktor, 1997. "Extended benefit entitlement periods and the duration of unemployment in West Germany," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 97-14, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  15. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, Econometric Society, vol. 52(2), pages 271-320, March.
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Citations

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Cited by:
  1. Kai-Uwe Müller & Viktor Steiner, 2008. "Would a Legal Minimum Wage Reduce Poverty?: A Microsimulation Study for Germany," Discussion Papers of DIW Berlin 791, DIW Berlin, German Institute for Economic Research.
  2. Pio Baake & Vanessa von Schlippenbach, 2008. "Upfront Payments and Listing Decisions," Discussion Papers of DIW Berlin 793, DIW Berlin, German Institute for Economic Research.
  3. Haan, Peter & Prowse, Victoria L., 2010. "The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model," IZA Discussion Papers 4792, Institute for the Study of Labor (IZA).
  4. Müller, Kai-Uwe & Steiner, Viktor, 2008. "Would a Legal Minimum Wage Reduce Poverty? A Microsimulation Study for Germany," IZA Discussion Papers 3491, Institute for the Study of Labor (IZA).
  5. Martin Schindler & Mariya Aleksynska, 2011. "Labor Market Regulations in Low-, Middle- and High-Income Countries," IMF Working Papers 11/154, International Monetary Fund.
  6. Viktor Steiner, 2007. "Beschäftigungsförderung und Einkommenssicherung im Niedriglohnbereich: Wege und Irrwege," Discussion Papers of DIW Berlin 747, DIW Berlin, German Institute for Economic Research.
  7. Krebs, Tom & Scheffel, Martin, 2010. "A macroeconomic model for the evaluation of labor market reforms," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 10-050, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. John P. Haisken-DeNew & Christoph M. Schmidt, 2009. "Nickel and Dimed German Style: The Working Poor in Germany," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0122, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  9. John P. Haisken-DeNew & Matthias Vorell, 2009. "Killing them with Kindness: Negative Distributional Externalities of Increasing UI Benefits," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0121, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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