On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited

Bruno Decreuse and Elvira Kazbakova ()
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Elvira Kazbakova: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: We revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of sucha signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefitshave elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers.expectations and their recruitmentpractices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.

Keywords: Worker heterogeneity; Signalling; Hazard rate; Unemployment compensation; Moral hazard; Hétérogénéité des travailleurs; Signal; Sortie du chômage; Indemnisation du chômage; Risque moral (search for similar items in EconPapers)
Date: 2008-11-17
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Working Paper: On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited (2008)
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