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

Lukas Inderbitzin (), Stefan Staubli and Josef Zweimüller ()

No 1323, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: This paper explores how extended unemployment insurance (UI) benefits targeted to older workers affect early retirement and social welfare. We argue that the analysis of UI's tradeoff between consumption smoothing and moral hazard needs to consider the entire early retirement system, which often consists of extended UI and relaxed access to disability insurance (DI). We argue that extended UI generates program complementarity (higher future take-up of DI and/or regular retirement benefits) or program substitution (lower contemporaneous take-up of DI benefits). 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 an optimal UI formula in the spirit of Baily (1978) and Chetty (2006) that features 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: 51 pages
Date: 2013-10
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://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1323.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:usg:econwp:2013:23

Access Statistics for this paper

More papers in Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by ().