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We study how outside options affect workers’ incentives to exert effort. We exploit quasiexperimental
variation from age- and experience-based cutoffs in Austria’s unemployment
insurance (UI), and proxy effort with absenteeism. Extending potential UI benefit duration
increases absenteeism, with larger effects for workers facing higher unemployment risk, those
employed at declining or low-wage firms, or those on flatter wage profiles. These results are
consistent with a relational contracting model where effort reductions caused by higher outside
options are more pronounced if the perceived relationship value is small.
