The Effects of Unemployment Benefits in Italy: Evidence from an Institutional Change

Abstract:     
We document the effects of a change in the Italian Ordinary Unemployment Benefits Scheme on the job search process. As of January 2001, the replacement rate was raised from 30% to 40% and benefits’ duration extended from 6 to 9 months for workers aged 50 or more. Our results show that (a) the average duration of benefits' collection increased by around one month for individuals entitled to 3 additional months, while it did not change significantly for those only exposed to higher replacement rates; (b) the pace of re-employment is never found to be statistically different across regimes, although point estimates for those exposed to a longer duration consistently indicate a 2 to 4 percentage points lower probability of re-employment at several horizons. Graphical evidence suggests that job-separation rates did not change with the new regime, while take-up apparently did, although the clear cyclical pattern could bias the picture. We conclude that, if any, the behavioural response induced by the change, must have been modest in economic terms. We discuss the reasons why the response may have been so subdued.

Number of Pages in PDF File: 48

Keywords: unemployment insurance, unemployment duration, replacement rate

JEL Classification: J64, J65

working papers series