How Effective are Unemployment Benefit Sanctions? Looking Beyond Unemployment Exit

54 Pages Posted: 2 Nov 2009

See all articles by Patrick P. Arni

Patrick P. Arni

University of Lausanne - Department of Economics (DEEP)

Rafael Lalive

University of Lausanne - Department of Economics (DEEP); IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Jan C. van Ours

Tilburg University - Department of Economics; University of Melbourne - Department of Economics

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Abstract

This paper provides a comprehensive evaluation of benefit sanctions, i.e. temporary reductions in unemployment benefits as punishment for noncompliance with eligibility requirements. In addition to the effects on unemployment durations, we evaluate the effects on post-unemployment employment stability, on exits from the labor market and on earnings. In our analysis we use a rich set of Swiss register data which allow us to distinguish between ex ante effects, the effects of warnings and the effects of enforcement of benefit sanctions. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that both warnings and enforcement increase the job finding rate and the exit rate out of the labor force. Warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings. The net effect of a benefit sanction on post-unemployment income is negative. Over a period of two years after leaving unemployment workers who got a benefit sanction imposed face a net income loss equivalent to 30 days of full pay due to the ex post effect. In addition to that, stricter monitoring may reduce net earnings by up to 4 days of pay for every unemployed worker due to the ex ante effect.

Keywords: benefit sanctions, earnings effects, unemployment duration, competing-risk duration models

JEL Classification: J64, J65, J68

Suggested Citation

Arni, Patrick P. and Lalive, Rafael and van Ours, Jan C., How Effective are Unemployment Benefit Sanctions? Looking Beyond Unemployment Exit. IZA Discussion Paper No. 4509. Available at SSRN: https://ssrn.com/abstract=1497715

Patrick P. Arni (Contact Author)

University of Lausanne - Department of Economics (DEEP) ( email )

BFSH1
Lausanne, 1015
Switzerland

Rafael Lalive

University of Lausanne - Department of Economics (DEEP) ( email )

BFSH1
Lausanne, 1015
Switzerland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Jan C. Van Ours

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2880 (Phone)
+31 13 466 3042 (Fax)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

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