Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution

Lukas Inderbitzin, Stefan Staubli and Josef Zweimüller ()

No 2013-04, NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria

Abstract: This paper explores how extended unemployment insurance (UI) benefits targeted to older workers affect early retirement and social welfare. The trade-off of optimal UI between consumption smoothing and moral hazard requires accounting for the entire early retirement system, which often includes extended UI and relaxed access to disability insurance (DI). We argue that extended UI generates program complementarity (increased take-up of UI followed by DI and/or regular retirement benefits) and program substitution (increased take-up of UI instead of DI). Exploiting Austria’s regional extended benefit program, which extended regular UI benefits to up to 4 years, we find: (i) program complementarity is quantitatively important for workers aged 50+; and (ii) program substitution is quantitatively relevant for workers aged 55+. We derive a simple rule for optimal UI that accounts for program complementarity and program substitution. Using the sufficient statistics approach, we conclude that UI for older workers was too generous and the regional extended benefit program was a suboptimal policy.

Keywords: Early retirement; unemployment; disability; policy reform; optimal benefits (search for similar items in EconPapers)
JEL-codes: J14 J26 J65 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2013-04
New Economics Papers: this item is included in nep-age and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
http://www.labornrn.at/wp/2013/wp1304.pdf (application/pdf)

Related works:
Journal Article: Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution (2016)
Working Paper: Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution (2015)
Working Paper: Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution (2013)
Working Paper: Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution (2013)
Working Paper: Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution (2013)
Working Paper: Extended unemployment benefits and early retirement: program complementarity and program substitution (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jku:nrnwps:2013_04

Access Statistics for this paper

More papers in NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria Contact information at EDIRC.
Bibliographic data for series maintained by René Böheim ().