IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Unemployment Traps: Do Financial Disincentives Matter?

  • Pedersen, Peder J.


    (Aarhus University)

  • Smith, Nina


    (Aarhus University)

This paper analyses the importance of financial dis-incentives for workers in Denmark. Based on a panel survey which is merged to a number of administrative registers it is possible to calculate precise measures of the economic incentives for labour force participants between employment in a full time job and being on unemployment insurance benefits and considering also the fixed costs of work. The results indicate large dis-incentives effects for some groups, especially low paid women. In 1996, 6 per cent of Danish men and 13 per cent of the women had a lower disposable net income if working in a full-time job compared to being on unemployment benefits. The effect of these financial dis-incentives is analysed in simple reduced form models of on-the-job search, unemployed search behaviour, unemployment risk, and transitions out of the labour force. We find that the net compensation rate in unemployment has a significant impact on women’s propensity to leave the labour force, on measures of search intensity, on the risk of being hit by unemployment and on one of our flexibility measures, i.e. the maximum acceptable commuting time to a job. The net compensation rate has no impact on the willingness to move to another place to get a job. However, here we find a significant impact from job attitude related measures. We end the paper reporting the results from including attitude variables along with economic variables. We find a number of significant effects from attitude variables. However, the main conclusion is that economic incentives dominate the present analysis of unemployment traps.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 274.

in new window

Length: 37 pages
Date of creation: Mar 2001
Date of revision:
Publication status: published in: European Sociological Review, 2002, 18 (3), 271-288; see IZA Reprints 173/03
Handle: RePEc:iza:izadps:dp274
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page:

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Atkinson, A.B., 1987. "Income maintenance and social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 13, pages 779-908 Elsevier.
  2. Holmlund, Bertil, 1997. "Unemployment Insurance in Theory and Practice," Working Paper Series 1997:25, Uppsala University, Department of Economics.
  3. Daron Acemoglu & Robert Shimer, 1998. "Efficient Unemployment Insurance," NBER Working Papers 6686, National Bureau of Economic Research, Inc.
  4. Christopher Pissarides, 1997. "The impact of employment tax cuts on unemployment and wages : the role of unemployment benefits and tax structure," LSE Research Online Documents on Economics 2332, London School of Economics and Political Science, LSE Library.
  5. N. Eissa & H. W. Hoynes, . "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
  6. Callan, T. & Dex, S. & Smith, N. & Vlasblom, J.D., 1999. "Taxation of Spouses: a Cross-Country Study of the Effects on Maaried Women's Labour Supply," Papers 99-02, Centre for Labour Market and Social Research, Danmark-.
  7. Graversen, E.K. & Smith, N., 1998. "Labour Supply, Overtime Work and Taxation in Denmark," Papers 98-06, Centre for Labour Market and Social Research, Danmark-.
  8. Andrew Dilnot & Alan Duncan, 1992. "Lone mothers, family credit and paid work," Fiscal Studies, Institute for Fiscal Studies, vol. 13(1), pages 1-21, February.
  9. Pissarides, C. & Wadsworth, J., 1988. "On-The-Job Search: Some Empirical Evidence," Papers 317, London School of Economics - Centre for Labour Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp274. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.