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Labor force participation, job search effort and unemployment insurance in the laboratory

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  • Lechthaler, Wolfgang
  • Ring, Patrick

Abstract

How the provision of unemployment benefits affects employment and unemployment is a debated issue. In this paper, we aim at complementing theoretical and empirical contributions to this debate with a laboratory experiment: We simulate a job market with search effort and labor force participation decisions while varying the maximum length of unemployment benefit eligibility. Our results reveal two separable, opposing effects: Individuals within the labor force search with lower effort when unemployment benefits are extended. However, individuals are more likely to participate in the labor force and to actively search for a job. Concerning employment, the second effect dominates so that unemployment benefits raise employment.

Suggested Citation

  • Lechthaler, Wolfgang & Ring, Patrick, 2020. "Labor force participation, job search effort and unemployment insurance in the laboratory," Kiel Working Papers 2149, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:2149
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    References listed on IDEAS

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    More about this item

    Keywords

    Job Search; Employment; Labor Force Participation; Unemployment Insurance; Economic Recession; Laboratory; Experiment;
    All these keywords.

    JEL classification:

    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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