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How Does the Unemployment Insurance System Shape the Time Profile of Jobless Duration?

  • Addison, John T.


    (University of South Carolina)

  • Portugal, Pedro


    (Banco de Portugal)

This paper examines the effects of unemployment insurance on escape rates from unemployment using data from the 1998 Displaced Worker Survey. Transitions from unemployment to employment are modeled using a flexible representation of the baseline hazard function and allowing for discrete changes through time in the effects of unemployment insurance benefits, as well as those of the other covariates. The impact of unemployment insurance is also modeled using a time-varying benefits measure, namely, time to exhaustion of benefits. Potential biases stemming from reverse causation and unobserved individual heterogeneity are accommodated. Both approaches render transparent the major disincentive effects of access to benefits on re-employment rates while also providing evidence of time-varying effects of other regressors.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 978.

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Length: 27 pages
Date of creation: Jan 2004
Date of revision:
Publication status: published in: Economics Letters, 2004, 85 (2), 229-234
Handle: RePEc:iza:izadps:dp978
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  1. Bruce K. Fallick, 1989. "Unemployment Insurance and the Rate of Re-Employment of Displaced Workers," UCLA Economics Working Papers 550, UCLA Department of Economics.
  2. Nickell, Stephen J, 1979. "Estimating the Probability of Leaving Unemployment," Econometrica, Econometric Society, vol. 47(5), pages 1249-66, September.
  3. Anderson, Patricia M, 1992. "Time-Varying Effects of Recall Expectation, a Reemployment Bonus, and Job Counseling on Unemployment Durations," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 99-115, January.
  4. Lawrence F. Katz & Bruce D. Meyer, 1988. "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," NBER Working Papers 2741, National Bureau of Economic Research, Inc.
  5. McCall, Brian P, 1994. "Testing the Proportional Hazards Assumption in the Presence of Unmeasured Heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 9(3), pages 321-34, July-Sept.
  6. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  7. Pedro Portugal & John T. Addison, 1990. "Problems of sample construction in studies of the effects of unemployment insurance on unemployment duration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 43(4), pages 463-477, April.
  8. Narendranathan, W & Stewart, Mark B, 1993. "How Does the Benefit Effect Vary as Unemployment Spells Lengthen?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 361-81, Oct.-Dec..
  9. McCall, Brian P, 1997. "The Determinants of Full-Time versus Part-Time Reemployment Following Job Displacement," Journal of Labor Economics, University of Chicago Press, vol. 15(4), pages 714-34, October.
  10. McCall, B.P., 1993. "Unemployment Insurance Rules, Joblessness, and Part-Time Work," Papers 93-07, Minnesota - Industrial Relations Center.
  11. James M. Poterba & Lawrence H. Summers, 1983. "Survey Response Variation in the Current Population Survey," NBER Working Papers 1109, National Bureau of Economic Research, Inc.
  12. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  13. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
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