The Effect of Unemployment Insurance Sanctions on the Transition Rate from Unemployment to Employment

Abstract

This paper finds that unemployment insurance sanctions substantially raise individual transition rates from unemployment to employment. Sanctions are punitive benefits reductions that are supposed to make recipients comply with certain minimum requirements concerning search behavior. We provide a theoretical analysis and we use a unique administrative data set of individuals who started collecting unemployment insurance in the Netherlands in 1992. We deal with various forms of selectivity involved in the imposition of a sanction. We exploit the timing of events as well as the fact that some respondents experience multiple unemployment spells.

JEL Classification: J65, J64, C41