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The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model

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  • Haan, Peter

    ()
    (DIW Berlin)

  • Prowse, Victoria L.

    ()
    (Cornell University)

Abstract

In this paper we use a dynamic structural life-cycle model to analyze the employment, fiscal and welfare effects induced by unemployment insurance. The model features a detailed specification of the tax and transfer system, including unemployment insurance benefits which depend on an individual's employment and earnings history. The model also captures the endogenous accumulation of experience which impacts on future wages, job arrivals and job separations. For better identification of the structural parameters we exploit a quasi-natural experiment, namely reductions over time in the entitlement period for unemployment insurance benefits which varied by age and experience. The results show that a policy cut in the generosity of unemployment insurance operationalized as a reduction in the entitlement period generates a larger increase in employment and yields a bigger fiscal saving than a cut operationalized as a reduction in the replacement ratio. Welfare analysis of revenue neutral tax and transfer reforms also favors a reduction in the entitlement period.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4792.

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Length: 41 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4792

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Related research

Keywords: unemployment insurance; replacement ratio; entitlement period; life-cycle labor supply; tax reform; method of simulated moments;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Do not cut unemployment insurance benefits, shorten eligibility
    by Economic Logician in Economic Logic on 2010-04-01 14:09:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," MAGKS Papers on Economics, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) 201210, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Victoria Prowse & Peter Haan, 2011. "Longevity, Life-cycle Behavior and Pension Reform," Economics Series Working Papers 556, University of Oxford, Department of Economics.
  3. de Pinto, Marco, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 66059, Verein für Socialpolitik / German Economic Association.
  4. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme for Trade Gains - A Positive Analysis," IAAEU Discussion Papers, Institute of Labour Law and Industrial Relations in the European Union (IAAEU) 201204, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  5. Mike Brewer & Monica Costa Dias & Jonathan Shaw, 2012. "Lifetime inequality and redistribution," IFS Working Papers, Institute for Fiscal Studies W12/23, Institute for Fiscal Studies.
  6. Marco de Pinto, 2012. "The Redistribution of Trade Gains and the Equity-Efficiency Trade-Off," IAAEU Discussion Papers, Institute of Labour Law and Industrial Relations in the European Union (IAAEU) 201206, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  7. Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," FIW Working Paper series, FIW 092, FIW.

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