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Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence

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  • Mário Centeno
  • Álvaro A. Novo

Abstract

type="main" xml:lang="en"> The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi-experimental setting generated by an increase in the benefits entitlement period. The results suggest a hump-shape response of unemployment duration over the one-year pre-unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low-wage workers.

Suggested Citation

  • Mário Centeno & Álvaro A. Novo, 2014. "Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 76(2), pages 185-207, April.
  • Handle: RePEc:bla:obuest:v:76:y:2014:i:2:p:185-207
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    File URL: http://hdl.handle.net/10.1111/obes.12019
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    Cited by:

    1. Mesén Vargas, Juliana & Van der Linden, Bruno, 2017. "Is There Always a Trade-off between Insurance and Incentives? The Case of Unemployment with Subsistence Constraints," IZA Discussion Papers 11034, Institute for the Study of Labor (IZA).
    2. Marta C. Lopes, 2016. "Using the variation in potential duration of unemployment benefits to estimate the causal effect of unemployment duration on re-employment wages," FEUNL Working Paper Series wp608, Universidade Nova de Lisboa, Faculdade de Economia.
    3. Pauline Leung & Christopher O'Leary, 2015. "Should UI Eligibility Be Expanded to Low-Earning Workers? Evidence on Employment, Transfer Receipt, and Income from Administrative Data," Working Papers 591, Princeton University, Department of Economics, Industrial Relations Section..
    4. Gonzalez-Rozada, Martin & Ruffo, Hernán, 2016. "Optimal unemployment benefits in the presence of informal labor markets," Labour Economics, Elsevier, vol. 41(C), pages 204-227.

    More about this item

    JEL classification:

    • 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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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