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Disincentive Effects Of Unemployment Insurance Benefits: Maximum Benefit Duration Versus Benefit Level

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  • Anne Lauringson

Abstract

This paper uses a unique dataset about unemployment insurance recipients and their exits to employment in Estonia to investigate the effects of benefits on unemployment duration. The administrative data used clearly pinpoints total unemployment spells and exits to employment. Both nonparametric and parametric estimations show that unemployment benefits have a strong and significant disincentive effect on hazard rates to exit into employment, just as search theory predicts. The effects of benefits are stronger and more homogeneous when the maximum duration of unemployment insurance benefit is longer. Unemployed people eligible for shorter unemployment insurance benefits are influenced more by the size of benefits and changes in the benefit replacement rate. Also, for both groups there is a rise in hazard rates during the benefit period and a sharp drop straight after.

Suggested Citation

  • Anne Lauringson, 2010. "Disincentive Effects Of Unemployment Insurance Benefits: Maximum Benefit Duration Versus Benefit Level," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 70, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    • Handle: RePEc:mtk:febawb:70
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    References listed on IDEAS

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    1. van Ours, Jan C. & Vodopivec, Milan, 2008. "Does reducing unemployment insurance generosity reduce job match quality?," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 684-695, April.
    2. Van den Berg, Gerard J., 2001. "Duration models: specification, identification and multiple durations," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 55, pages 3381-3460, Elsevier.
    3. Jan C. van Ours & Milan Vodopivec, 2006. "How Shortening the Potential Duration of Unemployment Benefits Affects the Duration of Unemployment: Evidence from a Natural Experiment," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 351-378, April.
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    Cited by:

    1. Jaan Masso & Kerly Krillo, 2011. "Mixed Adjustment Forms and Inequality Effects in Estonia, Latvia and Lithuania," Chapters, in: Daniel Vaughan-Whitehead (ed.), Work Inequalities in the Crisis, chapter 2, Edward Elgar Publishing.
    2. Lilas Demmou, 2012. "Matching Skills and Jobs in Estonia," OECD Economics Department Working Papers 1007, OECD Publishing.
    3. Pesliakaite, Jurgita, 2015. "Determinants of unemployment in CEE-10 economies: the role of labour market institutions and the macroeconomic environment in 2002–2012," MPRA Paper 66041, University Library of Munich, Germany.
    4. Jaan Masso & Kerly Krillo, 2011. "Labour Markets In The Baltic States During The Crisis 2008-2009: The Effect On Different Labour Market Groups," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 79, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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    More about this item

    Keywords

    unemployment benefits; disincentive effects; Estonia;
    All these keywords.

    JEL classification:

    • 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
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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