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Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution

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  • Inderbitzin, Lukas
  • Staubli, Stefan
  • Zweimüller, Josef

Abstract

We explore how extended unemployment insurance (UI) benefits for older workers affect early retirement and welfare. We argue that extending UI benefits generates program complementarity (more labor market exits and disability benefit take-up in the future) and program substitution (less disability benefit take-up in the present). Exploiting a policy change in Austria, which extended UI benefits to 4 years, we find program complementarity effects for workers aged 50+ and program substitution effects for workers aged 55+. We apply the Baily-Chetty formula for optimal UI to account for complementarity and substitution, showing that UI benefits for older workers were too generous.

Suggested Citation

  • Inderbitzin, Lukas & Staubli, Stefan & Zweimüller, Josef, 2015. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," CEPR Discussion Papers 10646, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10646
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    References listed on IDEAS

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    More about this item

    Keywords

    disability; early retirement; optimal benefits; policy reform; unemployment;

    JEL classification:

    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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