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Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

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  • Andrey Launov

    ()
    (Chair in Macroeconomics, Johannes Gutenberg-Universität Mainz, Germany)

  • Klaus Wälde

    (Chair in Macroeconomics, Johannes Gutenberg-Universität Mainz, Germany)

Abstract

The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment bene?ts displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expres- sion for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment bene?t reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we ?nd 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.

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Bibliographic Info

Paper provided by Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz in its series Working Papers with number 1007.

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Length: 45 pages
Date of creation: 21 May 2010
Date of revision: 21 May 2010
Handle: RePEc:jgu:wpaper:1007

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Keywords: Non-stationary unemployment bene?ts; endogenous effort; matching model; structural estimation; Semi-Markov process;

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