Killing them with Kindness: Negative Distributional Externalities of Increasing UI Benefits
Of the many labour market Hartz IV reforms that have been implemented in Germany since 2005, the role of short-term unemployment insurance has not received much attention. In this paper we examine distributional effects of labour earnings and unemployment benefits using simulated increases in unemployment insurance replacement rates or equivalently, increases in the net present value of benefit duration. Starting around an 18%-point increase in the replacement rate, there are significant negative labour supply effects, drawing those employed into unemployment shifting the mass of the earnings distribution to the left. At around a 25%-point increase in the replacement rate, the mass of the distribution shifts right again, as those receiving unemployment benefits simply enjoy an increased transfer. Thus, due to the substantial negative labour supply effects, German economic policy should avoid potentially increasing the UI benefit replacement rate (or equivalently, increasing the benefit duration) in the near future as a response to the worldwide economic crisis.
|Date of creation:||Jul 2009|
|Date of revision:|
|Contact details of provider:|| Postal: Hohenzollernstraße 1-3, 45128 Essen|
Web page: http://www.rwi-essen.de/
More information through EDIRC
|Order Information:||Web: http://www.rwi-essen.de/publikationen/|
When requesting a correction, please mention this item's handle: RePEc:rwi:repape:0121. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Weiler)
If references are entirely missing, you can add them using this form.