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Unemployment Insurance and the Duration of Employment: Theory and Evidence from a Regression Kink Design

Diogo Britto

No def048, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: Can unemployment insurance (UI) affect the behavior of employed workers and the duration of their employment spells? I apply a regression kink design to address this question using data from the Brazilian labor market. Exploiting the UI schedule, I find that a 1% higher potential benefit level increases job duration by around 0.35%. This result is driven by the fact that a higher potential benefit level reduces the probability of job quits, which are not covered by UI. I develop a simple model showing that the positive effect on employment duration implies that the optimal benefit is higher than otherwise and delivers a simple welfare formula based on sufficient statistics. A simple calibration exercise shows that this elasticity affects welfare with a similar magnitude as the well-known elasticity of unemployment duration to the benefit level.

Keywords: Unemployment Insurance; Employment Duration; Regression Kink Design; Sufficient Statistics Welfare Analysis. (search for similar items in EconPapers)
JEL-codes: I38 J65 (search for similar items in EconPapers)
Pages: 87
Date: 2016-09
New Economics Papers: this item is included in nep-ias
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http://dipartimenti.unicatt.it/economia-finanza-def048.pdf First version, 2016 (application/pdf)

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