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The spike at benefit exhaustion in the Finnish labor market

Tomi Kyyrä (), Hanna Pesola and Jouko Verho

No 86, Working Papers from VATT Institute for Economic Research

Abstract: Many studies have found that the exit rate from unemployment increases in the vicinity of the exhaustion day of unemployment insurance benefits. The extent to which this spike is driven by job search behavior is important for assessing the distortionary effect of unemployment insurance. Card, Chetty and Weber (American Economic Review 2007; 97: 113–118) find a large spike in the exit rate from registered unemployment but only a very small spike in the job finding rate in Austria. We replicate their analysis using matched register data for Finland. We find a large spike also in the job finding rate at the time of benefit exhaustion, even though it is clearly smaller than the spike in the exit rate from unemployment benefits. In addition, we demonstrate difficulties in measuring the time to benefit exhaustion when the benefit entitlement can elapse at a reduced rate during activation measures or part-time working. Unless the remaining benefit entitlement is directly observed in the data, the resulting measurement error can lead to downward biased estimates of the spikes at benefit exhaustion.

Keywords: unemployment benefit; unemployment duration; unemployment insurance; Social security; taxation and inequality; Labour markets and education; C41; J64; J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur and nep-ias
Date: 2017
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