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Why Is There a Spike in the Job Finding Rate at Benefit Exhaustion?

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Author Info

  • Boone, Jan

    ()
    (Tilburg University)

  • van Ours, Jan C.

    ()
    (Tilburg University)

Abstract

Putting a limit on the duration of unemployment benefits tends to introduce a "spike" in the job finding rate shortly before benefits are exhausted. Current theories explain this spike from workers’ behavior. We present a theoretical model in which also the nature of the job matters. End-of-benefit spikes in job finding rates are related to optimizing behavior of unemployed workers who rationally assume that employers will accept delays in the starting date of a new job, especially if these jobs are permanent. We use a dataset on Slovenian unemployment spells to test this prediction and find supporting evidence. We conclude that the spike in the job finding rate suggests that workers exploit unemployment insurance benefits for subsidized leisure.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4523.

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Length: 42 pages
Date of creation: Oct 2009
Date of revision:
Publication status: published in: De Economist, 2012, 160 (4), 413-438
Handle: RePEc:iza:izadps:dp4523

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Keywords: unemployment benefits; spikes;

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References

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  1. David Card & Phillip B. Levine, 1998. "Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program," NBER Working Papers 6714, National Bureau of Economic Research, Inc.
  2. Lawrence F. Katz & Bruce D. Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Working Papers 2741, National Bureau of Economic Research, Inc.
  3. Vodopivec, Milan, 1995. "Unemployment insurance and duration of unemployment : evidence from Slovenia's transition," Policy Research Working Paper Series 1552, The World Bank.
  4. Rafael Lalive & Jan C. van Ours & Josef Zweimüller, 2004. "How Changes in Financial Incentives Affect the Duration of Unemployment," CESifo Working Paper Series 1337, CESifo Group Munich.
  5. Carling, K. & Holmlund, B. & Vejsiu, A., 1999. "Do Benefit Cuts Boost Job Findings? Swedish Evidence from the 1990s," Papers, Uppsala - Working Paper Series 1999:20, Uppsala - Working Paper Series.
  6. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(484), pages 190-206, January.
  7. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  8. Lawrence F. Katz & Bruce D. Meyer, 1988. "Unemployment Insurance, Recall Expectations, And Unemployment Outcomes," NBER Working Papers 2594, National Bureau of Economic Research, Inc.
  9. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, Econometric Society, vol. 58(4), pages 757-82, July.
  10. van Ours, Jan C & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5741, C.E.P.R. Discussion Papers.
  11. 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, American Economic Association, vol. 97(2), pages 113-118, May.
  12. Adamchik, Vera, 1999. " The Effect of Unemployment Benefits on the Probability of Re-employment in Poland," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(1), pages 95-108, February.
  13. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum, Tilburg University, Faculty of Economics and Business Administration 242, Tilburg University, Faculty of Economics and Business Administration.
  14. 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.
  15. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 24(2), pages 351-378, April.
  16. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, Elsevier, vol. 28(1), pages 85-101, April.
  17. van Ours, Jan C. & Vodopivec, Milan, 2008. "Does reducing unemployment insurance generosity reduce job match quality?," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 684-695, April.
  18. Moffitt, Robert & Nicholson, Walter, 1982. "The Effect of Unemployment Insurance on Unemployment: The Case of Federal Supplemental Benefits," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 1-11, February.
  19. 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, Elsevier, vol. 59(3), pages 313-334, March.
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Cited by:
  1. Rafael Lalive & Analía Schlosser & Andreas Steinhauer & Josef Zweimüller, 2011. "Parental leave and mothers' careers: the relative importance of job protection and cash benefits," ECON - Working Papers, Department of Economics - University of Zurich 042, Department of Economics - University of Zurich.
  2. Cockx, Bart & Dejemeppe, Muriel, 2010. "The Threat of Monitoring Job Search: A Discontinuity Design," IZA Discussion Papers 5337, Institute for the Study of Labor (IZA).
  3. Regev, Tali, 2012. "Unemployment compensation under partial program coverage," Labour Economics, Elsevier, Elsevier, vol. 19(6), pages 888-897.
  4. Kahn, Lawrence M., 2009. "Temporary Jobs and Job Search Effort in Europe," IZA Discussion Papers 4020, Institute for the Study of Labor (IZA).
  5. Marco Caliendo & Konstantinos Tatsiramos & Arne Uhlendorff, 2009. "Benefit Duration, Unemployment Duration and Job Match Quality: A Regression-Discontinuity Approach," Discussion Papers of DIW Berlin 967, DIW Berlin, German Institute for Economic Research.
  6. Herwig Immervoll, 2010. "Minimum Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges," OECD Social, Employment and Migration Working Papers 100, OECD Publishing.
  7. Rebollo-Sanz, Yolanda, 2012. "Unemployment insurance and job turnover in Spain," Labour Economics, Elsevier, Elsevier, vol. 19(3), pages 403-426.
  8. De Groot, Nynke & van der Klaauw, Bas, 2014. "The Effects of Reducing the Entitlement Period to Unemployment Insurance Benefits," IZA Discussion Papers 8336, Institute for the Study of Labor (IZA).

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