On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited

Bruno Decreuse and Elvira Kazbakova

MPRA Paper from University Library of Munich, Germany

Abstract: We revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of such a signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefits have elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers' expectations and their recruitment practices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.

Keywords: Worker heterogeneity; Signalling; Hazard rate; Unemployment compensation; Moral hazard (search for similar items in EconPapers)
JEL-codes: D83 J64 J65 (search for similar items in EconPapers)
Date: 2008-10
New Economics Papers: this item is included in nep-cta and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11223

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