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Unemployment Insurance and Subsequent Job Duration: Job Matching vs Unobserved Heterogeneity

  • Christian Belzil

The relationship between Unemployment Insurance (UI) benefit duration, unemployment duration and subsequent job duration is investigated using a multi-state duration model with state specific unobserved heterogeneity. I examine two potential explanations for the negative correlation between unemployment and job spell durations; UI benefits increase job matching quality (the Matching effect) vs unobserved heterogeneity (Adverse Selection). The Matching effect is found to be weak. Although new jobs accepted within 5 weeks of benefit termination seem to have a higher dissolution rate, the negative correlation between unemployment and job duration is mostly explained by unobserved heterogeneity. Various simulations indicate that increasing the maximum benefit duration by one week will raise expected unemployment duration by 1.0 to 1.5 days but will raise expected job duration by 0.5 to 0.8 days only. Dans cet article, j'analyse le lien entre la durée des prestations d'assurance-chômage, la durée du chômage et la durée de l'emploi subséquent. L'analyse est faite à l'aide d'un modèle de durée avec états multiples et hétérogénéité non-observée. ¸ l'aide du modèle, je tente de faire la distinction entre deux hypothèses possibles qui expliqueraient la corrélation négative entre durée de chômage et durée de l'emploi subséquent; la durée des prestations augmente la durée de l'emploi subséquent (un effet de matching), ou la corrélation négative est expliquée par la sélection adverse. Les résultats tendent à supporter l'hypothèse de sélection adverse tandis que l'effet de matching semble être faible.

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File URL: http://www.cirano.qc.ca/files/publications/2001s-21.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 2001s-21.

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Length: 34 pages
Date of creation: 01 Mar 2001
Date of revision:
Handle: RePEc:cir:cirwor:2001s-21
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  1. John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
  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. Belzil, Christian, 1995. "Unemployment Insurance and Unemployment over Time: An Analysis with Event History Data," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 113-26, February.
  4. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  5. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-42, February.
  6. Michael Baker & Rea Samuel A. Rea, 1995. "Employment Spells and Unemployment Insurance Eligibility Requirements," Labor and Demography 9505001, EconWPA.
  7. Belzil, Christian, 1996. "Relative Efficiencies and Comparative Advantages in Job Search," Journal of Labor Economics, University of Chicago Press, vol. 14(1), pages 154-73, January.
  8. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M.
  9. Kathleen P. Classen, 1977. "The effect of unemployment insurance on the duration of unemployment and subsequent earnings," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 438-444, July.
  10. 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.
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