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Working to get fired? Regression discontinuity effects of unemployment benefit eligibility on prior employment duration

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  • Pedro S. Martins

Abstract

In most countries, the unemployed are entitled to unemployment benefits only if they have previously worked a minimum period of time. This institutional feature creates a sharp change at eligibility in the disutility from unemployment and may distort the duration of jobs. In this paper, we show that this effect can be evaluated using a regression discontinuity approach. Our evidence is based on longitudinal social security data from Portugal, where the unemployed are required to work a relatively long period to collect benefits. We find that monthly transitions from employment to unemployment increase by 10% as soon as the eligibility condition is met. This result is driven entirely by transitions to subsidised unemployment, which increase by 20%, as non-subsidised unemployment is not affected. The effects are even larger for the unemployed with high replacement ratios or those who meet the eligibility condition from multiple employment spells.

Suggested Citation

  • Pedro S. Martins, 2015. "Working to get fired? Regression discontinuity effects of unemployment benefit eligibility on prior employment duration," Working Papers 61, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    • Handle: RePEc:cgs:wpaper:61
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    References listed on IDEAS

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    1. Christofides, Louis N & McKenna, C J, 1996. "Unemployment Insurance and Job Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 286-312, April.
    2. Pedro S. Martins & Sofia Pessoa e Costa, 2014. "Reemployment effects from increased activation: Evidence from times of crisis," Working Papers 52, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    3. Martins, Pedro S., 2016. "The Third Worker: Assessing the Trade-off between Employees and Contractors," IZA Discussion Papers 10222, Institute for the Study of Labor (IZA).
    4. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
    5. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    6. Pedro S. Martins, 2009. "Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 257-279, April.
    7. Michael Baker & Samuel A. Rea, 1998. "Employment Spells And Unemployment Insurance Eligibility Requirements," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 80-94, February.
    8. Rebollo-Sanz, Yolanda, 2012. "Unemployment insurance and job turnover in Spain," Labour Economics, Elsevier, vol. 19(3), pages 403-426.
    9. David A. Green & Timothy Sargent, 1998. "Unemployment Insurance and Job Durations: Seasonal and Non-Seasonal Jobs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 247-278, May.
    10. Gary Solon, 1984. "The Effects of Unemployment Insurance Eligibility Rules on Job Quitting Behavior," Journal of Human Resources, University of Wisconsin Press, vol. 19(1), pages 118-126.
    11. Jurajda, Stepan, 2002. "Estimating the effect of unemployment insurance compensation on the labor market histories of displaced workers," Journal of Econometrics, Elsevier, vol. 108(2), pages 227-252, June.
    12. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    13. Pedro S. Martins & Sofia Pessoa e Costa, 2014. "Reemployment and Substitution Effects from Increased Activation: Evidence from Times of Crisis," FEUNL Working Paper Series wp590, Universidade Nova de Lisboa, Faculdade de Economia.
    14. Addison, John T. & Portugal, Pedro, 2008. "How do different entitlements to unemployment benefits affect the transitions from unemployment into employment?," Economics Letters, Elsevier, vol. 101(3), pages 206-209, December.
    15. Pedro S. Martins, 2014. "30,000 Minimum Wages: The Economic Effects of Collective Bargaining Extensions," FEUNL Working Paper Series wp589, Universidade Nova de Lisboa, Faculdade de Economia.
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    Cited by:

    1. Goncalves, Judite & Martins, Pedro S., 2018. "The Effect of Self-Employment on Health: Evidence from Longitudinal Social Security Data," IZA Discussion Papers 11305, Institute for the Study of Labor (IZA).
    2. Pedro S. Martins, 2016. "Do wages increase when severance pay drops? Not in recessions," Working Papers 77, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    3. Gonçalves, Judite & Martins, Pedro S., 2018. "The effect of self-employment on health: Instrumental variables analysis of longitudinal social security data," GLO Discussion Paper Series 245, Global Labor Organization (GLO).

    More about this item

    Keywords

    Unemployment insurance; Moral hazard; Employment duration; Big data;

    JEL classification:

    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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