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The Effect of Extended Unemployment Benefit on the Job Finding Hazards: A Quasi-Experiment in Japan

  • Machikita, Tomohiro


    (Institute of Developing Economies (IDE-JETRO))

  • Kohara, Miki


    (Osaka University)

  • Sasaki, Masaru


    (Osaka University)

This paper studies how changes in extended unemployment insurance (UI) benefit affect the duration of unemployment. We investigate this question by exploiting not only strict age thresholds but also the pre-displacement tenure and the reason for separation from the previous job in the Japanese UI system which determines a worker's maximum potential UI benefit duration at the age of 45. Job-seekers who became unemployed due to exogenous reasons (such as establishment closure) at the age threshold of 45 who have longer pre-displacement tenure receive maximum benefits for longer durations. This rule creates a local randomized experiment. Using a large administrative dataset to implement a difference-in-differences approach for the narrow age range of 44-46 who entered unemployment in the same month in the same year, we find that longer maximum benefit durations do not lead to a decrease in the jobless hazard; the duration of unemployment is not prolonged among jobseekers who have longer maximum benefit duration. This result is robust to shorter and longer tenure before entering unemployment. The non-negative effect on the jobless hazard is primarily due to a small difference in maximum duration between the treated group and the control group. In addition, workers with firm-specificity are likely to take any job in difficult position. Since the disincentive effects of UI benefit is weaker among UI recipients with firm-specific human capital, the results suggest that extending UI benefit of prime-age job-seekers with longer tenure at previous job is an effective tool to enhance welfare.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7559.

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Length: 27 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7559
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  1. Knut Roed & Tao Zhang, 2003. "Does Unemployment Compensation Affect Unemployment Duration?," Economic Journal, Royal Economic Society, vol. 113(484), pages 190-206, January.
  2. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2010. "A Macroeconomic Theory of Optimal Unemployment Insurance," NBER Working Papers 16526, National Bureau of Economic Research, Inc.
  3. Tatsiramos, Konstantinos & van Ours, Jan C, 2012. "Labor Market Effects of Unemployment Insurance Design," CEPR Discussion Papers 9196, C.E.P.R. Discussion Papers.
  4. Henry S. Farber & Robert G. Valletta, 2013. "Do extended unemployment benefits lengthen unemployment spells? evidence from recent cycles in the U.S. labor market," Working Paper Series 2013-09, Federal Reserve Bank of San Francisco.
  5. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 143-213.
  6. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2011. "Optimal Unemployment Insurance Over the Business Cycle," CEP Discussion Papers dp1078, Centre for Economic Performance, LSE.
  7. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392 Elsevier.
  8. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 351-378, April.
  9. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 701-752.
  10. Bruce D. Meyer, 1995. "Lessons from the U.S. Unemployment Insurance Experiments," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 91-131, March.
  11. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  12. Jaap H. Abbring & Gerard J. Berg & Jan C. Ours, 2005. "The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment," Economic Journal, Royal Economic Society, vol. 115(505), pages 602-630, 07.
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