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Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence

  • Centeno, Mario

    ()

    (Banco de Portugal)

  • Novo, Alvaro A.

    ()

    (Banco de Portugal)

The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi-experimental setting generated by an increase in the benefits entitlement period. The results point towards a hump-shape response of unemployment duration over the one-year pre-unemployment wage distribution; individuals at the bottom and at the top of the wage distribution reacted less than those in the interquartile range. This behavior of job searchers is consistent with labor supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low-wage workers.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6992.

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Length: 32 pages
Date of creation: Nov 2012
Date of revision:
Publication status: published in: Oxford Bulletin of Economics and Statistics, 2013, [Online First]
Handle: RePEc:iza:izadps:dp6992
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  1. Hans Bloemen & Elena Stancanelli, 2001. "Individual Wealth, Reservation Wages, and Transitions into Employment," Sciences Po publications info:hdl:2441/9704, Sciences Po.
  2. Rasmus Lenz & Torben Tranæs, . "Job Search and Savings: Wealth Effects and Duration Dependence," EPRU Working Paper Series 01-10, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  3. Tomi Kyyrä & Ralf A. Wilke, 2007. "Reduction in the Long-Term Unemployment of the Elderly: A Success Story from Finland," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 154-182, 03.
  4. John T. Addison & Mário Centeno & Pedro Portugal, 2008. "Do Reservation Wages Really Decline?: Some International Evidence on the Determinants of Reservation Wages," SOEPpapers on Multidisciplinary Panel Data Research 85, DIW Berlin, The German Socio-Economic Panel (SOEP).
  5. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-On-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1511-1560, November.
  6. Stancanelli, E.G.F., 1997. "Do the rich stay unemployed longer? An empirical study for the U.K," Discussion Paper 97.81, Tilburg University, Center for Economic Research.
  7. Addison, John T. & Portugal, Pedro, 2007. "How Do Different Entitlements to Unemployment Benefits Affect the Transitions from Unemployment into Employment?," IZA Discussion Papers 3016, Institute for the Study of Labor (IZA).
  8. repec:cup:cbooks:9780521437899 is not listed on IDEAS
  9. John T. Addison & Mário Centeno & Pedro Portugal, 2008. "Unemployment Benefits and Reservation Wages: Key Elasticities from a Stripped-Down Job Search Approach," Working Papers w200803, Banco de Portugal, Economics and Research Department.
  10. Yann Algan & Arnaud Cheron & Jean-Olivier Hairault & Francois Langot, 2003. "Wealth Effect on Labor Market Transitions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 156-178, January.
  11. Card, David & Chetty, Raj & Weber, Andrea, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," IZA Discussion Papers 2590, Institute for the Study of Labor (IZA).
  12. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
  13. James P. Ziliak, 2003. "Income Transfers and Assets of the Poor," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 63-76, February.
  14. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
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