On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited
AbstractWe revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of such a signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefits have elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers' expectations and their recruitment practices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 11223.
Date of creation: Oct 2008
Date of revision:
Worker heterogeneity; Signalling; Hazard rate; Unemployment compensation; Moral hazard;
Other versions of this item:
- Bruno Decreuse & Elvira Kazbakova, 2008. "On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited," Working Papers halshs-00339146, HAL.
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-28 (All new papers)
- NEP-CTA-2008-10-28 (Contract Theory & Applications)
- NEP-LAB-2008-10-28 (Labour Economics)
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.:
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"Unemployment Insurance and Male Unemployment Duration in Canada,"
Journal of Labor Economics,
University of Chicago Press, vol. 5(3), pages 325-53, July.
- John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
- 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.
- Lynch, Lisa M, 1989. "The Youth Labor Market in the Eighties: Determinants of Re-employment Probabilities for Young Men and Women," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 37-45, February.
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