Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

Knut Røed () and Lars Westlie
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Lars Westlie: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21 , N-0349 Oslo , Norway

No 13/2007, Memorandum from Oslo University, Department of Economics

Abstract: Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes - i.e., regimes with a high likelihood of required participa-tion in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities - deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts af-ter a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effec-tive; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary bene-fit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

Keywords: Competing risks; unemployment insurance; timing-of-events; NPMLE; MMPH (search for similar items in EconPapers)
JEL-codes: C14 C15 C41 J64 J65 J68 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2007-06-21
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions (2007)
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