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Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

  • Røed, Knut


    (Ragnar Frisch Centre for Economic Research)

  • Westlie, Lars

    (Ragnar Frisch Centre for Economic Research)

Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes - i.e., regimes with a high likelihood of required participa-tion in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities - deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts af-ter a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effec-tive; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary bene-fit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 13/2007.

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Length: 49 pages
Date of creation: 21 Jun 2007
Date of revision:
Handle: RePEc:hhs:osloec:2007_013
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page:

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  1. Laura Larsson, 2006. "Sick of Being Unemployed? Interactions between Unemployment and Sickness Insurance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 97-113, 03.
  2. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  3. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The Nonparametric Identification of Treatment Effects in Duration Models," Econometrica, Econometric Society, vol. 71(5), pages 1491-1517, 09.
  4. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  5. Gaure, Simen & Røed, Knut & Zhang, Tao, 2005. "Time and Causality: A Monte Carlo Assessment of the Timing-of-Events Approach," Memorandum 19/2005, Oslo University, Department of Economics.
  6. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 65-99.
  7. Lawrence Katz & Bruce Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," Working Papers 621, Princeton University, Department of Economics, Industrial Relations Section..
  8. Bratberg, Espen & Vaage, Kjell, 2000. "Spell durations with long unemployment insurance periods," Labour Economics, Elsevier, vol. 7(2), pages 153-180, March.
  9. 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.
  10. Bernd Fitzenberger & Ralf A. Wilke, 2010. "Unemployment Durations in West Germany Before and After the Reform of the Unemployment Compensation System during the 1980s," German Economic Review, Verein für Socialpolitik, vol. 11, pages 336-366, 08.
  11. Card, David & Chetty, Raj & Weber, Andrea, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," IZA Discussion Papers 2590, Institute for the Study of Labor (IZA).
  12. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07.
  13. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
  14. Winter-Ebmer, Rudolf, 1996. "Potential Unemployment Benefit Duration and Spell Length: Lessons from a Quasi-experiment in Austria," CEPR Discussion Papers 1534, C.E.P.R. Discussion Papers.
  15. Van den Berg, Gerard J., 2001. "Duration models: specification, identification and multiple durations," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 55, pages 3381-3460 Elsevier.
  16. Lars Pico Geerdsen, 2006. "Is there a Threat Effect of Labour Market Programmes? A Study of ALMP in the Danish UI System," Economic Journal, Royal Economic Society, vol. 116(513), pages 738-750, 07.
  17. David Card & Phillip B. Levine, 1998. "Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program," NBER Working Papers 6714, National Bureau of Economic Research, Inc.
  18. Brinch, Christian N., 2007. "Nonparametric Identification Of The Mixed Hazards Model With Time-Varying Covariates," Econometric Theory, Cambridge University Press, vol. 23(02), pages 349-354, April.
  19. 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.
  20. Roed, Knut & Zhang, Tao, 2005. "Unemployment duration and economic incentives--a quasi random-assignment approach," European Economic Review, Elsevier, vol. 49(7), pages 1799-1825, October.
  21. Knut Røed & Peter Jensen & Anna Thoursie, 2008. "Unemployment duration and unemployment insurance: a comparative analysis based on Scandinavian micro data," Oxford Economic Papers, Oxford University Press, vol. 60(2), pages 254-274, April.
  22. 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.
  23. van den Berg, Gerard J, 1990. "Nonstationarity in Job Search Theory," Review of Economic Studies, Wiley Blackwell, vol. 57(2), pages 255-77, April.
  24. Gaure, Simen & Røed, Knut, 2003. "How Tight is the Labour Market? A Micro-Based Macro Indicator," Memorandum 09/2003, Oslo University, Department of Economics.
  25. Knut Røed & Oddbjørn Raaum, 2006. "Do Labour Market Programmes Speed up the Return to Work?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 541-568, October.
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