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Can unemployment benefit cuts improve employment and earnings?

Lionel Cottier, Kathrin Degen and Rafael Lalive ()
Additional contact information
Kathrin Degen: AMOSA Labor Market Observatory
Rafael Lalive: University of Lausanne

Empirical Economics, 2020, vol. 59, issue 2, No 6, 659-699

Abstract: Abstract We study how a reduction in potential benefit duration (PBD) affects employment and earnings of job seekers before and after unemployment benefits exhaust. Reducing PBD induces job seekers to become less selective and accept jobs earlier, which can worsen or improve labor market outcomes. We study a 2003 reform that reduces PBD from 24 to 18 months for job seekers younger than 55 years in Switzerland. Using older job seekers as a control group, we find that reducing PBD increases employment and earnings even after unemployment benefits have run out. Employment and earnings increase particularly strongly for job seekers who previously worked in industries with high R&D expenditures, industries where job seekers’ skills can depreciate rapidly.

Keywords: Potential benefit duration; Unemployment duration; Older workers; Earnings and employment (search for similar items in EconPapers)
JEL-codes: J64 J65 J38 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s00181-019-01677-6

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