Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

Knut Røed () and Lars Westlie ()
Additional contact information
Lars Westlie: Ragnar Frisch Centre for Economic Research

No 2877, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 participation 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 after 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 effective; 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 benefit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.

Keywords: MMPH; timing-of-events; unemployment insurance; competing risks; NPMLE (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
New Economics Papers: this item is included in nep-ias and nep-lab
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Citations: View citations in EconPapers (9)

Published - published as 'Unemployment Insurance in Welfare States: The Impacts of Soft Duration Constraints' in: Journal of the European Economic Association, 2012, 10 (3), 518-554

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