How Changes in Financial Incentives Affect the Duration of Unemployment

Rafael Lalive, Jan van Ours and Josef Zweimüller ()

No 1363, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies how changes in the two key parameters of unemployment insurance – the benefit replacement rate (RR) and the potential duration of benefits (PBD) – affect the duration of unemployment. In 1989, the Austrian government made unemployment insurance more generous by changing, simultaneously, the maximum duration of regular unemployment benefits and the earnings replacement ratio. We find that increasing the replacement ratio has much weaker disincentive effects than increasing the maximum duration of benefits. We use these results to split up the total costs to unemployment insurance funds into costs due to changes in the unemployment insurance system and costs due to behavioral responses of unemployed workers. Results indicate that costs due to behavioral responses are substantial.

Keywords: unemployment insurance; maximum benefit duration; replacement rate; unemployment duration; policy change (search for similar items in EconPapers)
JEL-codes: C41 J64 J65 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2004-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published - published in: Review of Economic Studies, 2006, 73 (4), 1009-1038

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Related works:
Journal Article: How Changes in Financial Incentives Affect the Duration of Unemployment (2006)
Working Paper: How Changes in Financial Incentives Affect the Duration of Unemployment (2005)
Working Paper: How Changes in Financial Incentives Affect the Duration of Unemployment (2004)
Working Paper: How Changes in Financial Incentives Affect the Duration of Unemployment (2004)
Working Paper: How Changes in Financial Incentives Affect the Duration of Unemployment (2004)
Working Paper: How changes in Financial Incentives Affect the Duration of Unemployment
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