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On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy

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  • Lorenzo Corsini

Abstract

We analyse the role that wealth and unemployment benefits have on unemployment duration and try to tackle the different mechanisms through which they may interact. In particular, we investigated on whether liquidity constraints (which are influenced both by wealth and benefits) are affecting negatively search effort and thus unemployment duration and whether the benefits eligibility criteria, requiring active search could produce incentives to find a job. Using a sample of newly unemployed from Italy in 2007, we perform estimations of Cox hazard models and as- sess what variables are important in determining unemployment duration. Our analysis highlights three relevant features. 1) Benefits have a mixed effect on duration: initially they provide incentives to actively search and increase re-employment probability, as the eligibility criteria impose certain search requirements and benefits are associated to re-employment services and counseling. However, with time, the mitigation of liquidity constraints takes over and they increase duration. 2) Household wealth, reducing liquidity constraints, seems to increase duration. 3) We find interactions between benefits and wealth: individuals from richer house- holds have less liquidity constraints and therefore the mitigating effect of benefits on liquidity constraints is less relevant and, in fact, we do not find evidence that, for these individuals, benefits increase unemployment duration.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2011/119.

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Date of creation: 09 Jan 2011
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Handle: RePEc:pie:dsedps:2011/119

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Keywords: Unemployment Insurance; Household Wealth; Unemployment Duration; Duration Models.;

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  1. Ashenfelter, Orley & Ashmore, David & Deschenes, Olivier, 2005. "Do unemployment insurance recipients actively seek work? Evidence from randomized trials in four U.S. States," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 53-75.
  2. Ortega, Javier & Rioux, Laurence, 2007. "On the Extent of Re-Entitlement Effects in Unemployment Compensation," IZA Discussion Papers 2807, Institute for the Study of Labor (IZA).
  3. Bloemen, H.G., 1995. "The relation between wealth and labour market transitions: An empirical study for the Netherlands," Discussion Paper 1995-99, Tilburg University, Center for Economic Research.
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  5. 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.
  6. Michele Pellizzari, 2004. "Unemployment Duration and the Interactions Between Unemployment Insurance and Social Assistance," Working Papers 272, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Bloemen, H.G. & Stancanelli, E.G.F., 1997. "Individual Wealth, Reservation Wages and Transitions into Employment," Discussion Paper 1997-02, Tilburg University, Center for Economic Research.
  8. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  9. Daniel H. Klepinger & Terry R. Johnson & Jutta M. Joesch, 2002. "Effects of unemployment insurance work-search requirements: The Maryland experiment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(1), pages 3-22, October.
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  11. 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.
  12. Hans G. Bloemen & Elena G. F. Stancanelli, 2005. "Financial Wealth, Consumption Smoothing and Income Shocks Arising from Job Loss," Economica, London School of Economics and Political Science, vol. 72(3), pages 431-452, 08.
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