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How Effective Are Unemployment Benefit Sanctions? Looking Beyond Unemployment Exit

  • Arni, Patrick

    ()

    (IZA)

  • Lalive, Rafael

    ()

    (University of Lausanne)

  • van Ours, Jan C.

    ()

    (Tilburg University)

This paper provides a comprehensive evaluation of benefit sanctions, i.e. temporary reductions in unemployment benefits as punishment for noncompliance with eligibility requirements. In addition to the effects on unemployment durations, we evaluate the effects on post-unemployment employment stability, on exits from the labor market and on earnings. In our analysis we use a rich set of Swiss register data which allow us to distinguish between ex ante effects, the effects of warnings and the effects of enforcement of benefit sanctions. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that both warnings and enforcement increase the job finding rate and the exit rate out of the labor force. Warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings. The net effect of a benefit sanction on post-unemployment income is negative. Over a period of two years after leaving unemployment workers who got a benefit sanction imposed face a net income loss equivalent to 30 days of full pay due to the ex post effect. In addition to that, stricter monitoring may reduce net earnings by up to 4 days of pay for every unemployed worker due to the ex ante effect.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4509.

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Length: 54 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4509
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  1. Daniel H. Klepinger & Terry R. Johnson & Jutta M. Joesch, 2002. "Effects of Unemployment Insurance Work-Search Requirements: The Maryland Experiment," ILR Review, Cornell University, ILR School, vol. 56(1), pages 3-22, October.
  2. Jan Boone & Jan C. van Ours, 2006. "Modeling Financial Incentives to Get the Unemployed Back to Work," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 227-252, June.
  3. Donald, Stephen G & Green, David A & Paarsch, Harry J, 2000. "Differences in Wage Distributions between Canada and the United States: An Application of a Flexible Estimator of Distribution Functions in the Presence of Covariates," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 609-33, October.
  4. 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.
  5. Bonnal, Liliane & Fougere, Denis & Serandon, Anne, 1997. "Evaluating the Impact of French Employment Policies on Individual Labour Market Histories," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 683-713, October.
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