On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited
AbstractWe revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of sucha signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefitshave elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers.expectations and their recruitmentpractices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.
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Date of creation: 17 Nov 2008
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Worker heterogeneity; Signalling; Hazard rate; Unemployment compensation; Moral hazard;
Other versions of this item:
- Decreuse, Bruno & Kazbakova, Elvira, 2008. "On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited," MPRA Paper 11223, University Library of Munich, Germany.
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
- Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
- Lynch, Lisa M, 1989. "The Youth Labor Market in the Eighties: Determinants of Re-employment Probabilities for Young Men and Women," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 37-45, February.
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