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Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

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  • Røed, Knut

    ()
    (Ragnar Frisch Centre for Economic Research)

  • Westlie, Lars

    ()
    (Ragnar Frisch Centre for Economic Research)

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 participation 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 after 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 effective; 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 benefit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2877.

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Length: 49 pages
Date of creation: Jun 2007
Date of revision:
Publication status: published as 'Unemployment Insurance in Welfare States: The Impacts of Soft Duration Constraints' in: Journal of the European Economic Association, 2012, 10 (3), 518-554
Handle: RePEc:iza:izadps:dp2877

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Keywords: MMPH; timing-of-events; unemployment insurance; competing risks; NPMLE;

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References

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  1. Laura Larsson, 2006. "Sick of Being Unemployed? Interactions between Unemployment and Sickness Insurance," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 108(1), pages 97-113, 03.
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  21. 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, Royal Economic Society, vol. 115(505), pages 602-630, 07.
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Citations

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Cited by:
  1. Svarer, Michael, 2008. "Crime and Partnerships," IZA Discussion Papers 3543, Institute for the Study of Labor (IZA).
  2. Westlie, Lars, 2008. "Norwegian Vocational Rehabilitation Programs: Improving Employability and Preventing Disability?," Memorandum, Oslo University, Department of Economics 24/2008, Oslo University, Department of Economics.
  3. Torbjørn Skardhamar & Kjetil Telle, 2009. "Life after prison The relationship between employment and re-incarceration," Discussion Papers, Research Department of Statistics Norway 597, Research Department of Statistics Norway.
  4. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," IZA Discussion Papers 3802, Institute for the Study of Labor (IZA).
  5. Michael Svarer, 2007. "The Effect of Sanctions on the Job Finding Rate: Evidence from Denmark," Economics Working Papers, School of Economics and Management, University of Aarhus 2007-10, School of Economics and Management, University of Aarhus.
  6. Henningsen, Morten, 2008. "Benefit shifting: The case of sickness insurance for the unemployed," Labour Economics, Elsevier, Elsevier, vol. 15(6), pages 1238-1269, December.

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