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Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: a three Country Comparison

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  • Corsini, Lorenzo

Abstract

We examine how unemployment schemes and liquidity constraints affect re-employment probabilities and unemployment duration. In particular we investigate to which extent those schemes, through employment services and search requirements, can offset the expected perverse effect of benefits on reservation wages and search effort. Similarly, given that liquidity constraints and financial pressure should also affect reservation wage and search effort we analyze whether better economic conditions of individuals actually increase duration. We perform the analysis on Finland, Italy and Poland, countries that displays significant differences both in the UI schemes generosity and eligibility criteria and in the overall degree of social wealth and economic prosperity. Using a sample of newly unemployed from these countries, we perform and estimation of Cox hazard models and assess what variables are important in determining unemployment duration. Our findings suggest that even correctly designed UI schemes have a mixed effect: initially they give incentive to increase search effort, as the eligibility criteria impose certain search requirements, but with time they simply reduces liquidity constraints and thus increase duration. As for the direct effect of liquidity constraints and financial pressure we found that in Italy and Poland they appear to reduce unemployment duration but they are not relevant in Finland, suggesting that these aspects are not so important in countries that are particularly rich and with a developed welfare system.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36572.

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Date of creation: Jan 2012
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Handle: RePEc:pra:mprapa:36572

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Keywords: Unemployment Insurance; Liquidity constraints; Re-employment; Unemployment Duration;

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  1. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  2. 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.
  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.
  4. 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.
  5. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  6. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-On-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1511-1560, November.
  7. Ashenfelter, Orley & Ashmore, David & Deschenes, Olivier, 2000. "Do Unemployment Insurance Recipients Actively Seek Work? Evidence From Randomized Trials in Four U.S. States," IZA Discussion Papers 128, Institute for the Study of Labor (IZA).
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Cited by:
  1. Josef C Brada & Marcello Signorelli, 2012. "Comparing Labor Market Performance: Some Stylized Facts and Key Findings," Comparative Economic Studies, Palgrave Macmillan, vol. 54(2), pages 231-250, June.

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