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Shortening the potential duration of unemployment benefits and labor market outcomes: Evidence from a natural experiment in Germany

Inna Petrunyk and Christian Pfeifer ()

No 377, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: This paper explores the effects of a major reform of unemployment benefits in Germany on the labor market outcomes of individuals with some health impairment. The reform induced a substantial reduction in the potential duration of regular unemployment benefits for older workers. This work analyzes the reform in a wider framework of institutional interactions, which allows us to distinguish between its intended and unintended effects. Our results provide causal evidence for a significant decrease in the number of days in unemployment benefits and increase in the number of days in employment. However, they also suggest a significant increase in the number of days in unemployment assistance, granted upon exhaustion of unemployment benefits. Transitions to unemployment assistance represent an unintended effect, limiting the success of a policy change that aims to increase labor supply via reductions in the generosity of the unemployment insurance system.

Keywords: policy evaluation; labor market reform; unemployment insurance; difference-in-differences (search for similar items in EconPapers)
JEL-codes: I1 J2 J65 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2018-01
New Economics Papers: this item is included in nep-ias and nep-lab
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