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Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level


  • Anne Lauringson

    () (University of Tartu and Estonian Unemployment Insurance Fund)


This paper uses a unique dataset about unemployment benefit recipients and their exits to employment in Estonia to investigate the effects of benefits on unemployment duration. Both nonparametric and parametric estimations show that unemployment benefits have a strong and significant disincentive effect on hazard rates to exit into employment, just as search theory predicts. The effects of benefits are stronger and more homogeneous when the maximum duration of unemployment insurance benefit is longer. The unemployed eligible for shorter unemployment insurance benefits are influenced more by the size of benefits and changes in the benefit replacement rate. Also, both for the unemployed with shorter benefit periods and for the unemployed with longer benefit periods a rise in hazard rates occurs during the benefit period and a sharp drop straight after.

Suggested Citation

  • Anne Lauringson, 2011. "Disincentive effects of unemployment insurance benefits: maximum benefit duration versus benefit level," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 25-50, July.
  • Handle: RePEc:bic:journl:v:11:y:2011:i:1:p:25-50

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    References listed on IDEAS

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    Cited by:

    1. Eamets, Raul, 2013. "Labour Market and Labour Market Policies During the Great Recession: The Case of Estonia," IZA Policy Papers 60, Institute for the Study of Labor (IZA).
    2. Simona Ferraro & Jaanika Merikull & Karsten Staehr, 2016. "Minimum wages and the wage distribution in Estonia," Bank of Estonia Working Papers wp2016-6, Bank of Estonia, revised 19 Aug 2016.

    More about this item


    unemployment benefits; disincentive effects; Estonia;

    JEL classification:

    • 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
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies


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