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Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design

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  • Landais, Camille

    () (London School of Economics)

Abstract

I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from the late 1970s to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how, in the tradition of the dynamic labor supply literature, one can identify the purely distortionary effects of UI using variations along the returns-to-employment profile brought about by exogenous variations in the benefit level as well as in the benefit duration. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Suggested Citation

  • Landais, Camille, 2013. "Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design," IZA Discussion Papers 7589, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp7589
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    References listed on IDEAS

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    4. Rafael Lalive & Camille Landais & Josef Zweimüller, 2015. "Market Externalities of Large Unemployment Insurance Extension Programs," American Economic Review, American Economic Association, vol. 105(12), pages 3564-3596, December.
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    7. Brown, Alessio & Kohlbrecher, Britta & Merkl, Christian & Snower, Dennis J., 2016. "The effects of productivity and benefits on unemployment: Breaking the link," MERIT Working Papers 032, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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    10. Lukas Inderbitzin & Stefan Staubli & Josef Zweimüller, 2016. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," American Economic Journal: Economic Policy, American Economic Association, vol. 8(1), pages 253-288, February.
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    23. Michau, Jean-Baptiste, 2015. "Optimal labor market policy with search frictions and risk-averse workers," Labour Economics, Elsevier, vol. 35(C), pages 93-107.
    24. François Gerard & Gustavo Gonzaga, 2013. "Informal Labor and the Cost of Social Programs: Evidence from 15 Years of Unemployment Insurance in Brazil," Textos para discussão 608, Department of Economics PUC-Rio (Brazil).

    More about this item

    Keywords

    unemployment insurance; regression kink design;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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