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Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: a three Country Comparison

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  • Corsini, Lorenzo

Abstract

We examine how unemployment schemes and liquidity constraints affect re-employment probabilities and unemployment duration. In particular we investigate to which extent those schemes, through employment services and search requirements, can offset the expected perverse effect of benefits on reservation wages and search effort. Similarly, given that liquidity constraints and financial pressure should also affect reservation wage and search effort we analyze whether better economic conditions of individuals actually increase duration. We perform the analysis on Finland, Italy and Poland, countries that displays significant differences both in the UI schemes generosity and eligibility criteria and in the overall degree of social wealth and economic prosperity. Using a sample of newly unemployed from these countries, we perform and estimation of Cox hazard models and assess what variables are important in determining unemployment duration. Our findings suggest that even correctly designed UI schemes have a mixed effect: initially they give incentive to increase search effort, as the eligibility criteria impose certain search requirements, but with time they simply reduces liquidity constraints and thus increase duration. As for the direct effect of liquidity constraints and financial pressure we found that in Italy and Poland they appear to reduce unemployment duration but they are not relevant in Finland, suggesting that these aspects are not so important in countries that are particularly rich and with a developed welfare system.

Suggested Citation

  • Corsini, Lorenzo, 2012. "Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: a three Country Comparison," MPRA Paper 36572, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36572
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    File URL: https://mpra.ub.uni-muenchen.de/36572/1/MPRA_paper_36572.pdf
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    References listed on IDEAS

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    1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    2. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1511-1560.
    3. Hans G. Bloemen, 2002. "The relation between wealth and labour market transitions: an empirical study for the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(3), pages 249-268.
    4. 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.
    5. Ashenfelter, Orley & Ashmore, David & Deschenes, Olivier, 2005. "Do unemployment insurance recipients actively seek work? Evidence from randomized trials in four U.S. States," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 53-75.
    6. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Enrico Marelli & Misbah T. Choudhry & Marcello Signorelli, 2013. "Youth and total unemployment rate: the impact of policies and institutions," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 121(1), pages 63-86.
    2. Amine Samir, 2016. "The Canadian Unemployment Insurance Generosity: Reflections from a Comparative Analysis," Comparative Economic Research, De Gruyter Open, vol. 19(3), pages 133-145, September.
    3. Josef C Brada & Marcello Signorelli, 2012. "Comparing Labor Market Performance: Some Stylized Facts and Key Findings," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(2), pages 231-250, June.

    More about this item

    Keywords

    Unemployment Insurance; Liquidity constraints; Re-employment; Unemployment Duration;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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