Advanced Search
MyIDEAS: Login to save this paper or follow this series

Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

Contents:

Author Info

  • Launov, Andrey

    ()
    (University of Mainz)

  • Wälde, Klaus

    ()
    (University of Mainz)

Abstract

The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment benefits displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expression for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment benefit reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we find that both employed and unemployed workers gain (the latter from an intertemporal perspective). The reason is the rise in the net wage caused by more vacancies per unemployed worker.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp4958.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4958.

as in new window
Length: 44 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4958

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: semi-Markov process; structural estimation; non-stationary unemployment benefits; endogenous effort; matching model;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Mortensen, Dale T. & Pissarides, Christopher A., 1999. "New developments in models of search in the labor market," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 39, pages 2567-2627 Elsevier.
  2. Fredriksson, Peter & Holmlund, Bertil, 2001. "Optimal Unemployment Insurance in Search Equilibrium," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(2), pages 370-99, April.
  3. Lentz, Rasmus & Mortensen, Dale T., 2005. "An Empirical Model of Growth Through Product Innovation," IZA Discussion Papers 1685, Institute for the Study of Labor (IZA).
  4. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 503, Cowles Foundation for Research in Economics, Yale University.
  5. Magnac, Thierry & Robin, Jean-Marc & Visser, Michael, 1995. "Analysing Incomplete Individual Employment Histories Using Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 10(S), pages S153-69, Suppl. De.
  6. Lars Ljungqvist & Thomas J. Sargent, 1996. "The European Unemployment Dilemma," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 36, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  7. Paserman, Daniele, 2004. "Job Search and Hyperbolic Discounting: Structural Estimation and Policy Evaluation," IZA Discussion Papers 997, Institute for the Study of Labor (IZA).
  8. Knut K. Aase, 1990. "Unemployment Insurance and Incentives," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 15(2), pages 141-157, September.
  9. Paul Frijters & Bas van der Klaauw, 2006. "Job Search with Nonparticipation," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(508), pages 45-83, 01.
  10. 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.
  11. Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers 546, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Coles, Melvyn & Masters, Adrian, 2007. "Re-entitlement effects with duration-dependent unemployment insurance in a stochastic matching equilibrium," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(9), pages 2879-2898, September.
  13. Shimer, Robert, 2006. "On-the-job search and strategic bargaining," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 811-830, May.
  14. Etienne Lehmann & Bruno Van Der Linden, 2007. "On the Optimality of Search Matching Equilibrium When Workers Are Risk Averse," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 9(5), pages 867-884, October.
  15. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, American Economic Association, vol. 72(5), pages 968-79, December.
  16. Robert Shimer & Iván Werning, 2007. "Reservation Wages and Unemployment Insurance," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(3), pages 1145-1185, 08.
  17. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, Econometric Society, vol. 74(4), pages 1013-1062, 07.
  18. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3548, C.E.P.R. Discussion Papers.
  19. Gerard J. van den Berg & Jan C. van Ours, 1999. "Duration dependence and heterogeneity in French youth unemployment durations," Journal of Population Economics, Springer, Springer, vol. 12(2), pages 273-285.
  20. Burdett, Kenneth & Kiefer, Nicholas M. & Sharma, Sunil, 1985. "Layoffs and duration dependence in a model of turnover," Journal of Econometrics, Elsevier, Elsevier, vol. 28(1), pages 51-69, April.
  21. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
  22. Pierre Cahuc & Fabien Postel-Vinay & Jean-Marc Robin, 2006. "Wage Bargaining with On-the-Job Search: Theory and Evidence," Econometrica, Econometric Society, Econometric Society, vol. 74(2), pages 323-364, 03.
  23. Berg, G.J. & Ridder, G., 1993. "An empirical equilibrium search model of the labour market," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  24. Burkhard Heer, 2002. "Should Unemployment Benefits be Related to Previous Earnings?," CESifo Working Paper Series 747, CESifo Group Munich.
  25. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(5), pages 893-928, October.
  26. Berg, G.J. & Ours, J.C., 1993. "Unemployment dynamics and duration dependence," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0022, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  27. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 24(1-2), pages 63-132.
  28. Shouyong Shi & Francisco Gonzalez, 2009. "An Equilibrium Theory of Learning, Search and Wages," 2009 Meeting Papers, Society for Economic Dynamics 27, Society for Economic Dynamics.
  29. Eckstein, Zvi & van den Berg, Gerard J., 2003. "Empirical Labor Search: A Survey," IZA Discussion Papers 929, Institute for the Study of Labor (IZA).
  30. Hugo A. Hopenhayn & Juan Pablo Nicolini, 2009. "Optimal Unemployment Insurance and Employment History," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1049-1070.
  31. Cahuc, Pierre & Lehmann, Etienne, 2000. "Should unemployment benefits decrease with the unemployment spell?," Journal of Public Economics, Elsevier, Elsevier, vol. 77(1), pages 135-153, July.
  32. Fitzenberger, Bernd & Wilke, Ralf, 2007. "New Insights on Unemployment Duration and Post Unemployment Earnings in Germany: Censored Box-Cox Quantile Regression at Work," IZA Discussion Papers 2609, Institute for the Study of Labor (IZA).
  33. 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.
  34. 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.
  35. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 412-38, April.
  36. Coles, Melvyn G. & Wright, Randall, 1998. "A Dynamic Equilibrium Model of Search, Bargaining, and Money," Journal of Economic Theory, Elsevier, Elsevier, vol. 78(1), pages 32-54, January.
  37. 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.
  38. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 115-168, January.
  39. Coles, Melvyn G. & Muthoo, Abhinay, 2003. "Bargaining in a non-stationary environment," Journal of Economic Theory, Elsevier, Elsevier, vol. 109(1), pages 70-89, March.
  40. Vishwanath, Tara, 1989. "Job Search, Stigma Effect, and Escape Rate from Unemployment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 7(4), pages 487-502, October.
  41. James Albrecht & Susan Vroman, 2005. "Equilibrium Search With Time-Varying Unemployment Benefits," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(505), pages 631-648, 07.
  42. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 321-32, March.
  43. Giuseppe Moscarini, 2005. "Job Matching and the Wage Distribution," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 481-516, 03.
  44. Ferrall, Christopher, 1997. "Unemployment Insurance Eligibility and the School-to-Work Transition in Canada and the United States," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 15(2), pages 115-29, April.
  45. Eckstein, Zvi & Wolpin, Kenneth I, 1995. "Duration to First Job and the Return to Schooling: Estimates from a Search-Matching Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(2), pages 263-86, April.
  46. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 10, pages 284-316, 08.
  47. Hujer, Reinhard & Schneider, Hilmar, 1989. "The analysis of labor market mobility using panel data," European Economic Review, Elsevier, Elsevier, vol. 33(2-3), pages 530-536, March.
  48. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  49. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 676-90, September.
  50. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(2), pages 279-98, April.
  51. Fahr, René & Sunde, Uwe, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," Munich Reprints in Economics, University of Munich, Department of Economics 20482, University of Munich, Department of Economics.
  52. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
  53. Franz, Wolfgang & Guertzgen, Nicole & Schubert, Stefanie & Clauss, Markus, 2007. "Reformen im Niedriglohnsektor: Eine integrierte CGE-Mikrosimulationsstudie der Arbeitsangebots- und Beschäftigungseffekte," ZEW Discussion Papers 07-085, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. SOEP based publications

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4958. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.