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Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

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  • Røed, Knut

    (Ragnar Frisch Centre for Economic Research)

  • Westlie, Lars

    (Ragnar Frisch Centre for Economic Research)

Abstract

Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes – i.e., regimes with a high likelihood of required participation in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities – deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts after a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effective; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary benefit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

Suggested Citation

  • Røed, Knut & Westlie, Lars, 2007. "Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions," IZA Discussion Papers 2877, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp2877
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    Citations

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    Cited by:

    1. Torbjørn Skardhamar & Kjetil Telle, 2009. "Life after prison The relationship between employment and re-incarceration," Discussion Papers 597, Statistics Norway, Research Department.
    2. Michael Svarer, 2011. "Crime and partnerships," Review of Economics of the Household, Springer, vol. 9(3), pages 307-325, September.
    3. Westlie, Lars, 2008. "Norwegian Vocational Rehabilitation Programs: Improving Employability and Preventing Disability?," Memorandum 24/2008, Oslo University, Department of Economics.
    4. Svarer, Michael, 2007. "The Effect of Sanctions on the Job Finding Rate: Evidence from Denmark," IZA Discussion Papers 3015, Institute of Labor Economics (IZA).
    5. Moffitt, Robert, 2008. "Welfare reform: the US experience," Working Paper Series 2008:13, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    6. Henningsen, Morten, 2008. "Benefit shifting: The case of sickness insurance for the unemployed," Labour Economics, Elsevier, vol. 15(6), pages 1238-1269, December.
    7. Gaure, Simen & Røed, Knut & Westlie, Lars, 2008. "The Impacts of Labor Market Policies on Job Search Behavior and Post-Unemployment Job Quality," Memorandum 22/2008, Oslo University, Department of Economics.

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    More about this item

    Keywords

    MMPH; timing-of-events; unemployment insurance; competing risks; NPMLE;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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