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Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

Andrey Launov () and Klaus Wälde ()

No 4958, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment benefits displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expression for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment benefit reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we find that both employed and unemployed workers gain (the latter from an intertemporal perspective). The reason is the rise in the net wage caused by more vacancies per unemployed worker.

Keywords: semi-Markov process; structural estimation; non-stationary unemployment benefits; endogenous effort; matching model (search for similar items in EconPapers)
JEL-codes: E24 J64 J68 C13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2010-05
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Related works:
Journal Article: ESTIMATING INCENTIVE AND WELFARE EFFECTS OF NONSTATIONARY UNEMPLOYMENT BENEFITS (2013) Downloads
Working Paper: Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits (2010) Downloads
Working Paper: Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits (2010) Downloads
Working Paper: Estimating Incentive and Welfare Effects of Non-stationary Unemployment Benefits (2010) Downloads
Working Paper: Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits (2010) Downloads
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