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Unemployment Duration, Benefit Duration and the Business Cycle

  • Arellano, Manuel
  • Bentolila, Samuel
  • Bover, Olympia

In this paper, we study the effects of unemployment benefit duration and the business cycle on unemployment duration. We construct durations for individuals entering unemployment from a longitudinal sample of Spanish men in 1987–94. Estimated discrete hazard models indicate that receipt of unemployment benefits significantly reduces the hazard of leaving unemployment. For instance, at durations of three months, the hazard for workers without benefits is twice as large as that for workers with benefits. Favourable business conditions increase the hazard of leaving unemployment. At sample-period magnitudes, this effect is significantly smaller than that of benefit receipt.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1840.

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Date of creation: Mar 1998
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Handle: RePEc:cpr:ceprdp:1840
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  1. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-29, June.
  2. Alfonso Alba-Ramirez & Richard B. Freeman, 1990. "Jobfinding and Wages when Longrun Unemployment is Really Long: The Case of Spain," NBER Working Papers 3409, National Bureau of Economic Research, Inc.
  3. Lawrence F. Katz & Bruce D. Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Working Papers 2741, National Bureau of Economic Research, Inc.
  4. Manski, C.F., 1991. "Identification of Endogenous Social Effects: the Reflection Problem," Working papers 9127, Wisconsin Madison - Social Systems.
  5. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  6. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  7. Guido W. Imbens & Lisa M. Lynch, 1993. "Re-Employment Probabilities over the Business Cycle," NBER Working Papers 4585, National Bureau of Economic Research, Inc.
  8. Ham, John C & LaLonde, Robert J, 1996. "The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training," Econometrica, Econometric Society, vol. 64(1), pages 175-205, January.
  9. Costas Meghir & Edward Whitehouse, 1993. "Labour market transitions and retirement of men in the UK," IFS Working Papers W93/12, Institute for Fiscal Studies.
  10. Blanchard, O.J. & Diamond, P., 1990. "Ranking, Unemployment Duration, And Wages," Working papers 546, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Ahn, Namkee & Ugidos-Olazabal, Arantza, 1995. "Duration of Unemployment in Spain: Relative Effects of Unemployment Benefit and Family Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(2), pages 249-64, May.
  12. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 361-81, Oct.-Dec..
  13. Sueyoshi, Glenn T, 1995. "A Class of Binary Response Models for Grouped Duration Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 411-31, Oct.-Dec..
  14. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  15. Moffitt, Robert & Nicholson, Walter, 1982. "The Effect of Unemployment Insurance on Unemployment: The Case of Federal Supplemental Benefits," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 1-11, February.
  16. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  17. 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.
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