Does Extending Unemployment Benefits Improve Job Quality?

37 Pages Posted: 5 May 2015

See all articles by Arash Nekoei

Arash Nekoei

Harvard University

Andrea Weber

Vienna University of Economics and Business; Austrian Institute of Economic Research (WIFO); Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

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Date Written: May 2015

Abstract

Contrary to standard search model predictions, prior studies failed to estimate a positive effect of unemployment insurance (UI) on reemployment wages. This paper estimates a positive UI wage effect exploiting an age-based regression discontinuity in Austrian administrative data. A search model incorporating duration dependence determines the UI wage effect as the balance between two offsetting forces: UI causes agents to seek higher-wage jobs, but also reduces wages by lengthening unemployment. This implies a negative relationship between the UI unemployment duration and wage effects, which holds empirically both in our sample and across studies, reconciling disparate wage-effect estimates. Empirically, UI raises wages by improving reemployment firms' quality and attenuating wage drops.

Keywords: job search, regression discontinuity design, unemployment insurance, wages

JEL Classification: H5, J3, J6

Suggested Citation

Nekoei, Arash and Weber, Andrea Michaela, Does Extending Unemployment Benefits Improve Job Quality? (May 2015). CEPR Discussion Paper No. DP10568. Available at SSRN: https://ssrn.com/abstract=2602805

Arash Nekoei (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Andrea Michaela Weber

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Institute for the Study of Labor (IZA)

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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