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Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany

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  • Petrunyk, Inna

    () (Leuphana University Lüneburg)

  • Pfeifer, Christian

    () (Leuphana University Lüneburg)

Abstract

This paper explores the effects of a major reform of unemployment benefits in Germany on the labor market outcomes of individuals with some health impairment. The reform induced a substantial reduction in the potential duration of regular unemployment benefits for older workers. This work analyzes the reform in a wider framework of institutional interactions, which allows us to distinguish between its intended and unintended effects. Our results provide causal evidence for a significant decrease in the number of days in unemployment benefits and increase in the number of days in employment. However, they also suggest a significant increase in the number of days in unemployment assistance, granted upon exhaustion of unemployment benefits. Transitions to unemployment assistance represent an unintended effect, limiting the success of a policy change that aims to increase labor supply via reductions in the generosity of the unemployment insurance system.

Suggested Citation

  • Petrunyk, Inna & Pfeifer, Christian, 2018. "Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany," IZA Discussion Papers 11300, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11300
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    References listed on IDEAS

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    More about this item

    Keywords

    policy evaluation; labor market reform; unemployment insurance; difference-in-differences;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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