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The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule

Author

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  • Kyyrä, Tomi

    (VATT, Helsinki)

  • Pesola, Hanna Onerva

    (VATT Institute for Economic Reserach, Helsinki)

Abstract

This paper analyzes the effects of unemployment insurance (UI) benefits on unemployment exits and subsequent labor market outcomes. We exploit a piecewise linear relationship between the previous wage and UI benefits in Finland to identify the causal effects of the benefit level by using a regression kink design. According to our findings, higher benefits lengthen nonemployment spells and decrease time spent in part-time unemployment, and thus result in more full-time unemployment. Also the re-employment probability and post-unemployment wage are negatively affected. The results for the duration of the first post-unemployment job are not conclusive, but in total both employment and earnings in the two years following the beginning of the unemployment spell decrease with higher benefits.

Suggested Citation

  • Kyyrä, Tomi & Pesola, Hanna Onerva, 2017. "The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule," IZA Discussion Papers 10484, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp10484
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    Cited by:

    1. Camarero Garcia, Sebastian & Hansch, Michelle, 2020. "The effect of unemployment insurance benefits on (self-)employment: Two sides of the same coin?," ZEW Discussion Papers 20-062, ZEW - Leibniz Centre for European Economic Research.
    2. Antti Saastamoinen & Mika Kortelainen, 2020. "When Does Money Stick in Education? Evidence from A Kinked Grant Rule," Education Finance and Policy, MIT Press, vol. 15(4), pages 708-735, Fall.
    3. Mauri Kotamäki & Jukka Mattila & Jussi Tervola, 2018. "Distributional Impacts of Behavioral Effects – Ex-Ante Evaluation of the 2017 Unemployment Insurance Reform in Finland," International Journal of Microsimulation, International Microsimulation Association, vol. 11(2), pages 146-168.

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    More about this item

    Keywords

    unemployment duration; job match quality; regression kink design; unemployment insurance;
    All these keywords.

    JEL classification:

    • 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

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