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

Author

Listed:
  • Kyyrä, Tomi

    () (VATT, Helsinki)

  • Pesola, Hanna

    () (VATT, 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, 2017. "The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule," IZA Discussion Papers 10484, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10484
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    References listed on IDEAS

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    1. Konstantinos Tatsiramos, 2009. "Unemployment Insurance in Europe: Unemployment Duration and Subsequent Employment Stability," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1225-1260, December.
    2. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
    3. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1511-1560.
    4. Mário Centeno, 2002. "The Match Quality Gains from Unemployment Insurance," Working Papers w200209, Banco de Portugal, Economics and Research Department.
    5. Acemoglu, Daron & Pischke, Jorn-Steffen, 2000. "Certification of training and training outcomes," European Economic Review, Elsevier, pages 917-927.
    6. Mário Centeno & Álvaro Novo, 2009. "Reemployment wages and UI liquidity effect: a regression discontinuity approach," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 8(1), pages 45-52, April.
    7. van Ours, Jan C. & Vodopivec, Milan, 2008. "Does reducing unemployment insurance generosity reduce job match quality?," Journal of Public Economics, Elsevier, pages 684-695.
    8. Acemoglu, Daron & Shimer, Robert, 2000. "Productivity gains from unemployment insurance," European Economic Review, Elsevier, vol. 44(7), pages 1195-1224, June.
    9. Arash Nekoei & Andrea Weber, 2017. "Does Extending Unemployment Benefits Improve Job Quality?," American Economic Review, American Economic Association, pages 527-561.
    10. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, pages 754-766.
    11. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," IZA Discussion Papers 3802, Institute for the Study of Labor (IZA).
    12. Yolanda F. Rebollo-Sanz & Nuria Rodriguez Planas, 2016. "When the Going Gets Tough... Financial Incentives, Duration of Unemployment and Job-Match Quality," Working Papers 16.11, Universidad Pablo de Olavide, Department of Economics.
    13. Uusitalo, Roope & Verho, Jouko, 2010. "The effect of unemployment benefits on re-employment rates: Evidence from the Finnish unemployment insurance reform," Labour Economics, Elsevier, vol. 17(4), pages 643-654, August.
    14. Mário Centeno, 2004. "The Match Quality Gains from Unemployment Insurance," Journal of Human Resources, University of Wisconsin Press, vol. 39(3).
    15. David Card & Zhuan Pei & David S. Lee & Andrea Weber, 2014. "Local Polynomial Order in Regression Discontinuity Designs," Working Papers 81, Brandeis University, Department of Economics and International Businesss School.
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    More about this item

    Keywords

    unemployment duration; job match quality; regression kink design; unemployment insurance;

    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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