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Post-Unemployment Wages and Economic Incentives to Exit from Unemployment

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Author Info
Tomi Kyyrä

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Abstract

This study represents the results of a comparative econometric analysis of the determinants of earnings and unemployment durations. The analysis uses two sets of panel data, one drawn from the outflows of unemployment and another from the working age population. The earnings of people leaving unemployment are modelled in order to obtain estimates for starting wages in subsequent jobs. With these estimates, the expected income changes associated with labour market transitions are evaluated at the household level. Some 8% of the unemployed are estimated to be unable to increase disposable income of their households through employment, while as much as 43% have to be content with a 25% increase or less. The income variables, with controls for other factors, are then mapped into a flexible competing risks model of unemployment duration. The expected returns to employment are found to be an important determinant of the probability of becoming employed. It appears also that the relative importance of economic incentives has been strengthened in the recession years.

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Paper provided by Government Institute for Economic Research (VATT) in its series VATT Research Reports with number 56.

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Date of creation: 01 Jan 1999
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Handle: RePEc:fer:resrep:56

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Related research
Keywords: Post-unemployment wages sample selection economic incentives labour market transitions duration models

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Find related papers by JEL classification:
C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - General
J00 - Labor and Demographic Economics - - General - - - General

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  1. Tuomas Pekkarinen, 2001. "The wage curve : evidence from the Finnish metal industry panel data," Finnish Economic Papers, Finnish Society for Economic Research, vol. 14(1), pages 51-60, Spring. [Downloadable!]
  2. D’Addio, Anna Cristina & De Greef, Isabelle & Rosholm, Michael, 2002. "Assessing Unemployment Traps in Belgium Using Panel Data Sample Selection Models," IZA Discussion Papers 669, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Poutvaara, Panu & Tuomala, Juha, 2004. "What Is Left to Residual Claimants? The Empirics of Income Reported by Entrepreneurs and Workers," IZA Discussion Papers 1178, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Erkki Koskela & Roope Uusitalo, 2003. "The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  5. Virve Ollikainen & Tomi Kyyrä, 2006. "To Search or Not to Search? The Effects of UI Benefit Extension for the Elderly Unemployed," VATT Discussion Papers 400, Government Institute for Economic Research (VATT). [Downloadable!]
  6. Jan Saarela & Fjalar Finnäs, 2004. "Interethnic Wage Variation in the Helsinki Area," Finnish Economic Papers, Finnish Society for Economic Research, vol. 17(1), pages 35-48, Spring. [Downloadable!]
  7. Kari Hämäläinen, 2003. "Education and Unemployment: State Dependence in Unemployment Among Young People in the 1990s," VATT Discussion Papers 312, Government Institute for Economic Research (VATT). [Downloadable!]
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