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Market Externalities of Large Unemployment Insurance Extension Programs

  • Lalive, Rafael
  • Landais, Camille
  • Zweimüller, Josef

This paper offers quasi experimental evidence of the existence of spillover effects of UI extensions using a unique program that extended unemployment benefits drastically for a subset of workers in selected regions of Austria. We use non-eligible unemployed in treated regions, and a difference-in-difference identification strategy to control for preexisting differences across treated and untreated regions. We uncover the presence of important spillover effects: in treated regions, as the search effort of treated workers plummets, the job finding probability of untreated workers increases, and their average unemployment duration and probability of long term unemployment decrease. These effects are the largest when the program intensity reaches its highest level, then decrease and disappear as the program is scaled down and finally interrupted. We use this evidence to assess the relevance of different assumptions on technology and the wage setting process in equilibrium search and matching models and discuss the policy implications of our results for the EUC extensions in the US.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9673.

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Date of creation: Oct 2013
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Handle: RePEc:cpr:ceprdp:9673
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  1. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "Optimal unemployment insurance over the business cycle," LSE Research Online Documents on Economics 35596, London School of Economics and Political Science, LSE Library.
  2. Ferracci, Marc & Jolivet, Gregóry & van den Berg, Gerard J., 2010. "Treatment evaluation in the case of interactions within markets," Working Paper Series 2010:1, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  3. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc.
  4. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 88-120, January.
  5. Lukas Inderbitzin & Stefan Staubli & Josef Zweimüller, 2013. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," Economics working papers 2013-06, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Bruno Crépon & Esther Duflo & Marc Gurgand & Roland Rathelot & Philippe Zamora, 2012. "Do Labor Market Policies have Displacement Effects? Evidence from a Clustered Randomized Experiment," Working Papers 2012-28, Centre de Recherche en Economie et Statistique.
  7. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  8. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  9. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 351-378, April.
  10. Grossman, Jean Baldwin, 1989. "The Work Disincentive Effect of Extended Unemployment Compensation: Recent Evidence," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 159-64, February.
  11. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-50, June.
  12. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
  13. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  14. Rothstein, Jesse, 2011. "Unemployment Insurance and Job Search in the Great Recession," Institute for Research on Labor and Employment, Working Paper Series qt5611t356, Institute of Industrial Relations, UC Berkeley.
  15. Carling, Kenneth & Edin, Per-Anders & Harkman, Anders & Holmlund, Bertil, 1996. "Unemployment duration, unemployment benefits, and labor market programs in Sweden," Journal of Public Economics, Elsevier, vol. 59(3), pages 313-334, March.
  16. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment benefits and unemployment in the Great Recession: the role of macro effects," Staff Reports 646, Federal Reserve Bank of New York.
  17. Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian social security database," IEW - Working Papers 410, Institute for Empirical Research in Economics - University of Zurich.
    • Josef Zweimüller & Rudolf Winter-Ebmer & Rafael Lalive & Andreas Kuhn & Jean-Philippe Wuellrich & Oliver Ruf & Simon Büchi, 2009. "Austrian Social Security Database," NRN working papers 2009-03, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  18. Atkinson, A.B., 1987. "Income maintenance and social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 13, pages 779-908 Elsevier.
  19. Johannes F. Schmieder & Till M. von Wachter & Stefan Bender, 2012. "The Long-Term Effects of Unemployment Insurance Extensions on Employment," NBER Working Papers 17814, National Bureau of Economic Research, Inc.
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