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Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

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  • Andrey Launov

    () (Chair in Macroeconomics, Johannes Gutenberg-Universität Mainz, Germany)

  • Klaus Wälde

    (Chair in Macroeconomics, Johannes Gutenberg-Universität Mainz, Germany)

Abstract

The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment bene?ts displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expres- sion for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment bene?t reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we ?nd that both employed and unemployed workers gain (the latter from an intertemporal perspective). The reason is the rise in the net wage caused by more vacancies per unemployed worker.

Suggested Citation

  • Andrey Launov & Klaus Wälde, 2010. "Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits," Working Papers 1007, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 21 May 2010.
  • Handle: RePEc:jgu:wpaper:1007
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    More about this item

    Keywords

    Non-stationary unemployment bene?ts; endogenous effort; matching model; structural estimation; Semi-Markov process;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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