Designing Unemployment Insurance
Friday, Jan. 5, 2018 8:00 AM - 10:00 AM
- Chair: Alexandre Mas, Princeton University
When the Going Gets Tough... Financial Incentives, Duration of Unemployment and Job-match Quality
AbstractIn the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60% to 50% after 180 days of unemployment for all spells beginning on July 15, 2012. Using Social Security data and a Differences-in-Differences approach, we find that reducing the RR by 10 percentage points (or 17%) increases workers’ odds of finding a job by 41% relative to similar workers not affected by the reform. To put it differently, the reform reduced the mean expected unemployment duration by 5.7 weeks (or 14%), implying an elasticity of 0.86. Alternatively, a Regression Discontinuity approach indicates that the reform increased the job finding rate by 26%. We find strong behavioral effects as the reform reduced the expected unemployment duration right from the beginning of the unemployment spell. While the reform had no effect on wages, it did not decrease other measures of post-displacement job-match quality. After 15 months, the reform decreased unemployment insurance expenditures by 16%, about half of which are explained by job seekers’ behavioral changes.
Consequences of Mandatory Advance Layoff Notice for Workers and Firms
AbstractEmployment protection rules create inefficiently low labor turnover, but also provide fully experience-rated layoff insurance for workers. This paper examines the benefits and costs of mandatory advance layoff notice using Swedish administrative data on the exact dates of layoff notice at the individual level. Exploiting discontinuities in notice period duration by age and tenure, we find that longer notice periods increase earnings during the first two years after notification. 70% of this earnings increase is due to less exposure to non-employment, and the rest is due to staying longer at the original firm. Exploiting firm-level discontinuities in notice periods, we also document that firms facing longer notice periods lay off fewer workers. Our theoretical framework ties these empirical results to the normative trade-offs involved in determining the optimal length of the notice period.
Unemployment Insurance and Reservation Wages: Evidence From Administrative Data
AbstractAlthough the reservation wage plays a central role in job search models, empirical evidence on the determinants of reservation wages, including key policy variables such as unemployment insurance (UI), is scarce. In France, unemployed people must declare their reservation wage to the Public Employment Service when they register to claim UI benefits. We take advantage of these rich French administrative data and of a reform of UI rules to estimate the effect of the potential benefit duration (PBD) on reservation wages and on other dimensions of job selectivity, using a difference-in-difference strategy. We cannot reject that the elasticity of the reservation wage with respect to PBD is zero. Our results are precise and we can rule out elasticities larger than 0.006. Furthermore, we do not find any significant effects of PBD on the desired number of hours, duration of labor contract and commuting time/distance. The estimated elasticity of actual benefit duration with respect to PBD of 0.3 is in line with the consensus in the literature. Exploiting a regression discontinuity design as an alternative identification strategy, we find similar results. Our findings indicate smaller effects of PBD on reservation wages than predicted by a calibrated non-stationary job-search model with endogenous search effort.
- J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers
- H2 - Taxation, Subsidies, and Revenue