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Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

Author

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  • Røed, Knut

    (Ragnar Frisch Centre for Economic Research)

  • Westlie, Lars

    (Ragnar Frisch Centre for Economic Research)

Abstract

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.

Suggested Citation

  • Røed, Knut & Westlie, Lars, 2007. "Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions," Memorandum 13/2007, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2007_013
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Torbjørn Skardhamar & Kjetil Telle, 2009. "Life after prison The relationship between employment and re-incarceration," Discussion Papers 597, Statistics Norway, Research Department.
    2. Michael Svarer, 2011. "Crime and partnerships," Review of Economics of the Household, Springer, vol. 9(3), pages 307-325, September.
    3. Westlie, Lars, 2008. "Norwegian Vocational Rehabilitation Programs: Improving Employability and Preventing Disability?," Memorandum 24/2008, Oslo University, Department of Economics.
    4. Svarer, Michael, 2007. "The Effect of Sanctions on the Job Finding Rate: Evidence from Denmark," IZA Discussion Papers 3015, Institute of Labor Economics (IZA).
    5. Henningsen, Morten, 2008. "Benefit shifting: The case of sickness insurance for the unemployed," Labour Economics, Elsevier, vol. 15(6), pages 1238-1269, December.
    6. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," Memorandum 22/2008, Oslo University, Department of Economics.
    7. Moffitt, Robert, 2008. "Welfare reform: the US experience," Working Paper Series 2008:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.

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    More about this item

    Keywords

    Competing risks; unemployment insurance; timing-of-events; NPMLE; MMPH;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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