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The Spike at Benefit Exhaustion in the Finnish Labor Market

Author

Listed:
  • Kyyrä, Tomi

    () (VATT, Helsinki)

  • Pesola, Hanna

    () (VATT, Helsinki)

  • Verho, Jouko Kullervo

    () (VATT, Helsinki)

Abstract

Many studies have found that the exit rate from unemployment increases in the vicinity of the exhaustion day of unemployment insurance benefits. The extent to which this "spike" is driven by job search behavior is important for assessing the distortionary effect of unemployment insurance. Card, Chetty and Weber (American Economic Review 2007; 97: 113-118) find a large spike in the exit rate from registered unemployment but only a very small spike in the job finding rate in Austria. We replicate their analysis using matched register data for Finland. We find a large spike also in the job finding rate at the time of benefit exhaustion, even though it is clearly smaller than the spike in the exit rate from unemployment benefits. In addition, we demonstrate difficulties in measuring the time to benefit exhaustion when the benefit entitlement can elapse at a reduced rate during activation measures or part-time working. Unless the remaining benefit entitlement is directly observed in the data, the resulting measurement error can lead to downward biased estimates of the spikes at benefit exhaustion.

Suggested Citation

  • Kyyrä, Tomi & Pesola, Hanna & Verho, Jouko Kullervo, 2017. "The Spike at Benefit Exhaustion in the Finnish Labor Market," IZA Discussion Papers 10798, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10798
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    References listed on IDEAS

    as
    1. Krueger, Alan B. & Mueller, Andreas, 2010. "Job search and unemployment insurance: New evidence from time use data," Journal of Public Economics, Elsevier, pages 298-307.
    2. McCall, Brian P, 1996. "Unemployment Insurance Rules, Joblessness, and Part-Time Work," Econometrica, Econometric Society, vol. 64(3), pages 647-682, May.
    3. Dale T. Mortensen, 1977. "Unemployment Insurance and Job Search Decisions," ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
    4. Jan Boone & Jan Ours, 2012. "Why is There a Spike in the Job Finding Rate at Benefit Exhaustion?," De Economist, Springer, pages 413-438.
    5. Gaure, Simen & Røed, Knut & Westlie, Lars, 2012. "Job search incentives and job match quality," Labour Economics, Elsevier, vol. 19(3), pages 438-450.
    6. Stefano DellaVigna & Attila Lindner & Balázs Reizer & Johannes F. Schmieder, 2017. "Reference-Dependent Job Search: Evidence from Hungary," The Quarterly Journal of Economics, Oxford University Press, vol. 132(4), pages 1969-2018.
    7. Lawrence F. Katz & Bruce D. Meyer, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, Oxford University Press, vol. 105(4), pages 973-1002.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    layoffs; unemployment insurance; hazard rates;

    JEL classification:

    • 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

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