DISINCENTIVE EFFECTS OF UNEMPLOYMENT INSURANCE BENEFITS: MAXIMUM BENEFIT DURATION VERSUS BENEFIT LEVEL

Anne Lauringson

No 70, University of Tartu - Faculty of Economics and Business Administration Working Paper Series from Faculty of Economics and Business Administration, University of Tartu (Estonia)

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.

Keywords: unemployment benefits; disincentive effects; Estonia (search for similar items in EconPapers)
JEL-codes: C41 J64 J65 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010
New Economics Papers: this item is included in nep-ias and nep-lab
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Citations: View citations in EconPapers (4)

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