On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited
We revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of such a signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefits have elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers' expectations and their recruitment practices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.
|Date of creation:||Oct 2008|
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- Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
- Lynch, Lisa M, 1989. "The Youth Labor Market in the Eighties: Determinants of Re-employment Probabilities for Young Men and Women," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 37-45, February.
- Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
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