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Benefit-Entitlement Effects and the Duration of Unemployment: An Ex-Ante Evaluation of Recent Labour Market Reforms in Germany

  • Schmitz, Hendrik

    ()

    (RWI)

  • Steiner, Viktor

    ()

    (Free University of Berlin)

We analyse benefit-entitlement effects and the likely impact of the recent reform of the unemployment compensation system on the duration of unemployment in Germany on the basis of a flexible discrete-time hazard rate model estimated on pre-reform data from the German Socioeconomic Panel (SOEP). We find (i) relatively strong benefit-entitlement effects for the unemployed who are eligible to means-tested unemployment assistance after the exhaustion of unemployment benefit, but not for those without such entitlement; (ii) non-monotonic benefit-entitlement effects on hazard rates with pronounced spikes around the month of benefit-exhaustion, and (iii) relatively small marginal effects of the amount of unemployment compensation on the duration of unemployment. Our simulation results show that the recent labour market reform is unlikely to have a major impact on the average duration of unemployment in the population as a whole, but will significantly reduce the level of long-term unemployment among older workers.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2681.

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Length: 39 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2681
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  1. Moffitt, Robert & Nicholson, Walter, 1982. "The Effect of Unemployment Insurance on Unemployment: The Case of Federal Supplemental Benefits," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 1-11, February.
  2. Alan B. Krueger & Bruce D. Meyer, 2002. "Labor Supply Effects of Social Insurance," NBER Working Papers 9014, National Bureau of Economic Research, Inc.
  3. Lawrence F. Katz & Bruce D. Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Working Papers 2741, National Bureau of Economic Research, Inc.
  4. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  5. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
  6. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  7. Dale Mortensen, 1984. "Job Search and Labor Market Analysis," Discussion Papers 594, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Hunt, Jennifer, 1995. "The Effect of Unemployment Compensation on Unemployment Duration in Germany," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 88-120, January.
  9. Jürgen Schupp & Gert G. Wagner, 2002. "Maintenance of and Innovation in Long-Term Panel Studies: The Case of the German Socio-Economic Panel (GSOEP)," Discussion Papers of DIW Berlin 276, DIW Berlin, German Institute for Economic Research.
  10. Fitzenberger, Bernd & Wilke, Ralf A., 2004. "Unemployment Durations in West-Germany Before and After the Reform of the Unemployment Compensation System During the 1980s," ZEW Discussion Papers 04-24, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  12. Steiner, Viktor, 1997. "Extended benefit entitlement periods and the duration of unemployment in West Germany," ZEW Discussion Papers 97-14, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Steiner, Viktor, 2001. " Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(1), pages 91-113, February.
  14. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series 1160, Berkeley Electronic Press.
  15. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
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