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The Effect of Unemployment Benefits and Nonemployment Durations on Wages

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Listed:
  • Johannes F. Schmieder
  • Till von Wachter
  • Stefan Bender

Abstract

We estimate that unemployment insurance (UI ) extensions reduce reemployment wages using sharp age discontinuities in UI eligibility in Germany. We show this effect combines two key policy parameters: the effect of UI on reservation wages and the effect of nonemployment durations on wage offers. Our framework implies if UI extensions do not affect wages conditional on duration, then reservation wages do not bind. We derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects. The effect of UI on wages we find arises mainly from substantial negative nonemployment duration effects. (JEL J31, J64, J65)

Suggested Citation

  • Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2016. "The Effect of Unemployment Benefits and Nonemployment Durations on Wages," American Economic Review, American Economic Association, vol. 106(3), pages 739-777, March.
  • Handle: RePEc:aea:aecrev:v:106:y:2016:i:3:p:739-77
    Note: DOI: 10.1257/aer.20141566
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    References listed on IDEAS

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    Cited by:

    1. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
    2. Eva M. Berger & Luke Haywood, 2016. "Locus of Control and Mothers’ Return to Employment," Journal of Human Capital, University of Chicago Press, vol. 10(4), pages 442-481.
    3. Deborah Goldschmidt & Wolfram Klosterhuber & Johannes F Schmieder, 2017. "Identifying couples in administrative data
      [Identifizierung von Ehepaaren in Administrativen Daten]
      ," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 50(1), pages 29-43, August.
    4. repec:eee:pubeco:v:164:y:2018:i:c:p:33-49 is not listed on IDEAS
    5. Cottier, Lionel & Flückiger, Yves & Kempeneers, Pierre & Lalive, Rafael, 2018. "Does Job Search Assistance Really Raise Employment?," IZA Discussion Papers 11766, Institute for the Study of Labor (IZA).
    6. repec:wfo:wstudy:59029 is not listed on IDEAS
    7. Gianna C. Giannelli & Ursula Jaenichen & Thomas Rothe, 2016. "The evolution of job stability and wages after the implementation of the Hartz reforms
      [Die Entwicklung von Beschäftigungsstabilität und Löhnen seit Einführung der Hartz-Reformen]
      ," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 49(3), pages 269-294, November.
    8. Brian Clark & Clément Joubert & Arnaud Maurel, 2017. "The career prospects of overeducated Americans," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 6(1), pages 1-29, December.
    9. Inna Petrunyk & Christian Pfeifer, 2018. "Shortening the potential duration of unemployment benefits and labor market outcomes: Evidence from a natural experiment in Germany," Working Paper Series in Economics 377, University of Lüneburg, Institute of Economics.
    10. repec:spr:jlabrs:v:52:y:2018:i:1:d:10.1186_s12651-018-0239-7 is not listed on IDEAS
    11. Lichter, Andreas, 2016. "Benefit Duration and Job Search Effort: Evidence from a Natural Experiment," IZA Discussion Papers 10264, Institute for the Study of Labor (IZA).
    12. Le Barbanchon, Thomas, 2016. "The effect of the potential duration of unemployment benefits on unemployment exits to work and match quality in France," Labour Economics, Elsevier, vol. 42(C), pages 16-29.
    13. repec:zbw:rwipro:180217 is not listed on IDEAS
    14. Lachowska, Marta & Meral, Merve & Woodbury, Stephen A., 2016. "Effects of the unemployment insurance work test on long-term employment outcomes," Labour Economics, Elsevier, vol. 41(C), pages 246-265.
    15. Simon Jäger & Benjamin Schoefer & Samuel Young & Josef Zweimüller, 2018. "Wages and the Value of Nonemployment," CESifo Working Paper Series 7342, CESifo Group Munich.
    16. repec:bla:labour:v:31:y:2017:i:4:p:337-368 is not listed on IDEAS
    17. repec:spr:izalpo:v:7:y:2018:i:1:d:10.1186_s40173-018-0102-z is not listed on IDEAS
    18. repec:eee:econom:v:206:y:2018:i:1:p:258-278 is not listed on IDEAS
    19. Petrunyk, Inna & Pfeifer, Christian, 2018. "Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany," IZA Discussion Papers 11300, Institute for the Study of Labor (IZA).
    20. vom Berge, Philipp & Klingert, Isabell & Becker, Sebastian & Lenhart, Julia & Trenkle, Simon & Umkehrer, Matthias, 2016. "Mindestlohnbegleitforschung - Überprüfung der Ausnahmeregelung für Langzeitarbeitslose : Forschungsauftrag des Bundesministeriums für Arbeit und Soziales (BMAS)," IAB-Forschungsbericht 201608, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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