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Designing Unemployment Insurance

Paper Session

Friday, Jan. 5, 2018 8:00 AM - 10:00 AM

Pennsylvania Convention Center, 203-B
Hosted By: American Economic Association
  • Chair: Alexandre Mas, Princeton University

Job Displacement, Family Dynamics, and Spousal Labor Supply

Martin Halla
,
University of Innsbruck
Julia Schmieder
,
Vienna University of Economics and Business
Andrea Weber
,
Central European University

Abstract

We study interdependencies in spousal labor supply and provide new empirical evidence on the added worker effect, the change in labor supply in response to an income shock to the spouse. Our focus are married couples in which the husband loses his job due to a mass layoff or plant closure using data from the Austrian Social Security Database. Couples in our sample are relatively young and the shock hits households at crucial stages of family formation. The high volatility in wives' pre-displacement labor market careers requires a careful choice of a control group to the model the counterfactual outcome at the household level. We examine three quasi-experimental counterfactual scenarios that are potentially affected by different types of selection on unobservables. Our analysis shows that husbands' and wives' labor market responses are remarkably consistent across all three scenarios and leads to four main conclusions. First, while husbands suffer large and persistent employment and earnings losses over the first 5 years after displacement, wives' labor supply increases only moderately but persistently. Second, wives respond predominantly at the extensive margin. The implied participation elasticity with respect to the husband's earnings shock is small, roughly 0.05 in the full sample and 0.08 in the sample of wives not employed at displacement. Third, in terms of non-labor market related outcomes we find a small positive effect on the probability of divorce but no effect of the husband's job displacement on fertility. Fourth, the effect of wives' labor supply responses on household income is negligible compared to the effects of unemployment insurance, which dampens especially the large initial earnings shock from job displacement.

When the Going Gets Tough... Financial Incentives, Duration of Unemployment and Job-match Quality

Nuria Rodriguez-Planas
,
City University of New York-Queens College
Yolanda Rebollo
,
Pablo de Olavide University

Abstract

In 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

Jonas Cederlof
,
Uppsala University
Peter Fredriksson
,
Uppsala University
Arash Nekoei
,
Institute for International Economic Studies 
David Seim
,
Stockholm University

Abstract

Employment 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

Thomas Le Barbanchon
,
Bocconi University
Roland Rathelot
,
University of Warwick
Alexandra Roulet
,
INSEAD

Abstract

Although 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. 
Discussant(s)
Juan Francisco Jimeno
,
Bank of Spain
Jeffrey Smith
,
University of Michigan
Ioana Elena Marinescu
,
University of Chicago
Pauline Leung
,
Cornell University
JEL Classifications
  • J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers
  • H2 - Taxation, Subsidies, and Revenue