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Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

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Author Info
Røed, Knut () (Ragnar Frisch Centre for Economic Research)
Westlie, Lars (Ragnar Frisch Centre for Economic Research)

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Abstract

Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes - i.e., regimes with a high likelihood of required participa-tion in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities - deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts af-ter a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effec-tive; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary bene-fit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo1307.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 13/2007.

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Length: 49 pages
Date of creation: 21 Jun 2007
Date of revision:
Handle: RePEc:hhs:osloec:2007_013

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Competing risks; unemployment insurance; timing-of-events; NPMLE; MMPH;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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.:

  1. Laura Larsson, 2006. "Sick of Being Unemployed? Interactions between Unemployment and Sickness Insurance," Scandinavian Journal of Economics, Blackwell Publishing, vol. 108(1), pages 97-113, 03. [Downloadable!] (restricted)
  2. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March. [Downloadable!] (restricted)
  3. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July. [Downloadable!] (restricted)
    Other versions:
  4. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07. [Downloadable!] (restricted)
    Other versions:
  5. David Card & Raj Chetty & Andrea Weber, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," American Economic Review, American Economic Association, vol. 97(2), pages 113-118, May. [Downloadable!]
    Other versions:
  6. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99. [Downloadable!] (restricted)
  7. Knut Røed & Oddbjørn Raaum, 2006. "Do Labour Market Programmes Speed up the Return to Work?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 541-568, October. [Downloadable!] (restricted)
  8. 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.
    Other versions:
  9. Carling, Kenneth & Edin, Per-Anders & Harkman, Anders & Holmlund, Bertil, 1996. "Unemployment duration, unemployment benefits, and labor market programs in Sweden," Journal of Public Economics, Elsevier, vol. 59(3), pages 313-334, March. [Downloadable!] (restricted)
  10. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 107-138, October. [Downloadable!] (restricted)
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  11. Bratberg, E. & Vaage, K., 2000. "Spell Durations with Long Unemployment Insurance Periods," Norway; Department of Economics, University of Bergen 208, Department of Economics, University of Bergen.
    Other versions:
  12. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 30(4), pages 505-517, July.
  13. Brinch, Christian N., 2007. "Nonparametric Identification Of The Mixed Hazards Model With Time-Varying Covariates," Econometric Theory, Cambridge University Press, vol. 23(02), pages 349-354, April. [Downloadable!]
  14. Gaure, Simen & Roed, Knut & Zhang, Tao, 2007. "Time and causality: A Monte Carlo assessment of the timing-of-events approach," Journal of Econometrics, Elsevier, vol. 141(2), pages 1159-1195, December. [Downloadable!] (restricted)
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  15. 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 04-24, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  16. 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. [Downloadable!] (restricted)
    Other versions:
  17. Van den Berg, Gerard J., 2001. "Duration models: specification, identification and multiple durations," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 55, pages 3381-3460 Elsevier. [Downloadable!] (restricted)
    Other versions:
  18. Roed, Knut & Zhang, Tao, 2005. "Unemployment duration and economic incentives--a quasi random-assignment approach," European Economic Review, Elsevier, vol. 49(7), pages 1799-1825, October. [Downloadable!] (restricted)
  19. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January. [Downloadable!] (restricted)
  20. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 88-120, January. [Downloadable!] (restricted)
    Other versions:
  21. Lars Pico Geerdsen, 2006. "Is there a Threat Effect of Labour Market Programmes? A Study of ALMP in the Danish UI System," Economic Journal, Royal Economic Society, vol. 116(513), pages 738-750, 07. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Michael Svarer, 2007. "The Effect of Sanctions on the Job Finding Rate: Evidence from Denmark," Economics Working Papers 2007-10, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  2. Westlie, Lars, 2008. "Norwegian Vocational Rehabilitation Programs: Improving Employability and Preventing Disability?," Memorandum 24/2008, Oslo University, Department of Economics. [Downloadable!]
  3. Michael Svarer, 2008. "Crime and Partnerships," Economics Working Papers 2008-06, School of Economics and Management, University of Aarhus. [Downloadable!]
    Other versions:
  4. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," Memorandum 22/2008, Oslo University, Department of Economics. [Downloadable!]
    Other versions:
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