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The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?

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Author Info
David Card
Raj Chetty
Andrea Weber

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Abstract

In this paper, we review the literature on the "spike" in unemployment exit rates around benefit exhaustion, and present new evidence based on administrative data for a large sample of job losers in Austria. We find that the way unemployment spells are measured has a large effect on the magnitude of the spike at exhaustion, both in existing studies and in our Austrian data. Spikes are typically much smaller when spell length is defined by the time to next job than when it is defined by the time spent on the unemployment system. In Austria, the exit rate from registered unemployment rises by over 200% at the expiration of benefits, while the hazard rate of re-employment rises by only 20%. The difference between the two measures arises because many individuals leave the unemployment register immediately after their benefits expire without returning to work. The modest spike in re-employment rates implies that most job seekers do not wait until their UI benefits are exhausted to return to work: fewer than 1% of jobless spells have an ending date that is manipulated to coincide with the expiration of UI benefits.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12893.

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Date of creation: Feb 2007
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Handle: RePEc:nbr:nberwo:12893

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Find related papers by JEL classification:
H0 - Public Economics - - General
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings

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References listed on IDEAS
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  1. Martin Feldstein, 2005. "Rethinking Social Insurance," American Economic Review, American Economic Association, vol. 95(1), pages 1-24, March. [Downloadable!] (restricted)
    Other versions:
  2. Carling, Kenneth & Edin, Per-Anders & Holmlund, Bertil & Jansson, Fredrik, 1995. "Unemployment Duration, Unemployment Benefits, and Labour Market Programmes in Sweden," CEPR Discussion Papers 1200, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July. [Downloadable!] (restricted)
    Other versions:
  4. Emilia Del Bono & Andrea Weber, 2006. "Do Wages Compensate for Anticipated Working Time Restrictions? Evidence from Seasonal Employment in Austria," IZA Discussion Papers 2242, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Katz, Lawrence F & Meyer, Bruce D, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, MIT Press, vol. 105(4), pages 973-1002, November. [Downloadable!] (restricted)
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  6. Michele Pellizzari, . "Unemployment Duration and the Interactions Between Unemployment Insurance and Social Assistance," Working Papers 272, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  7. McCall, Brian P, 1997. "The Determinants of Full-Time versus Part-Time Reemployment Following Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 15(4), pages 714-34, October. [Downloadable!] (restricted)
  8. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December. [Downloadable!] (restricted)
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  12. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February. [Downloadable!] (restricted)
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  13. Fallick, Bruce Chelimsky, 1991. "Unemployment Insurance and the Rate of Re-employment of Displaced Workers," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 228-35, May. [Downloadable!] (restricted)
  14. van Ours, Jan C. & Vodopivec, Milan, 2004. "How Changes in Benefits Entitlement Affect Job-Finding: Lessons from the Slovenian "Experiment"," IZA Discussion Papers 1181, Institute for the Study of Labor (IZA). [Downloadable!]
  15. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 107-138, October. [Downloadable!] (restricted)
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  16. Vodopivec, Milan, 1995. "Unemployment insurance and duration of unemployment : evidence from Slovenia's transition," Policy Research Working Paper Series 1552, The World Bank. [Downloadable!]
  17. Rafael Lalive & Jan Van Ours & Josef Zweimüller, 2006. "How Changes in Financial Incentives Affect the Duration of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 1009-1038, October. [Downloadable!] (restricted)
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  18. Dan A. Black & Jeffrey A. Smith & Mark C. Berger & Brett J. Noel, 2003. "Is the Threat of Reemployment Services More Effective than the Services Themselves? Evidence from Random Assignment in the UI System," American Economic Review, American Economic Association, vol. 93(4), pages 1313-1327, September. [Downloadable!] (restricted)
  19. repec:fth:prinin:352 is not listed on IDEAS
  20. Card, D. & Riddell, W.C., 1996. "Unemployment in Canada and the United States: A Further Analysis," UBC Departmental Archives 96-09, UBC Department of Economics.
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  21. David Card & Raj Chetty & Andrea Weber, 2006. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," NBER Working Papers 12639, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Bart Hobijn & Aysegül Sahin, 2007. "Job-finding and separation rates in the OECD," Staff Reports 298, Federal Reserve Bank of New York. [Downloadable!]
  2. Knut Røed & Lars Westlie, 2007. "Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions," IZA Discussion Papers 2877, Institute for the Study of Labor (IZA). [Downloadable!]
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