We examine the relationship between unemployment benefits and unemployment using Swedish regional data. To estimate the effect of an increase in unemployment insurance (UI) on unemployment we exploit the ceiling on UI benefits. The benefit ceiling, coupled with the fact that there are regional wage differentials, implies that the generosity of UI varies regionally. More importantly, the actual generosity of UI varies within region over time due to variations in the benefit ceiling. We find fairly robust evidence suggesting that the actual generosity of UI does matter for regional unemployment. Increases in the actual replacement rate contribute to higher unemployment as suggested by theory. We also show that removing the wage cap in UI benefit receipt would reduce the dispersion of regional unemployment. This result is due to the fact that low unemployment regions tend to be high wage regions where the benefit ceiling has a greater bite. Removing the benefit ceiling thus implies that the actual generosity of UI increases more in low unemployment regions.
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Paper provided by IFAU - Institute for Labour Market Policy Evaluation in its series Working Paper Series with number
2008:15.
Length: 38 pages Date of creation: 20 May 2008 Date of revision: Handle: RePEc:hhs:ifauwp:2008_015
Contact details of provider: Postal: Labour Market Policy Evaluation, P O Box 513, SE-751 20 Uppsala, Sweden Phone: (+46) 18 - 471 70 70 Fax: (+46) 18 - 471 70 71 Email: Web page: http://www.ifau.se/ More information through EDIRC
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Krueger, Alan B. & Meyer, Bruce D., 2002.
"Labor supply effects of social insurance,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392
Elsevier.
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