When the Going Gets Tough...Financial Incentives, Duration of Unemployment and Job-Match Quality

72 Pages Posted: 18 Jul 2016

See all articles by Yolanda Rebollo Sanz

Yolanda Rebollo Sanz

Universidad Pablo de Olavide

Núria Rodríguez-Planas

City University New York (CUNY), Queens College; IZA Institute of Labor Economics

Abstract

In the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60% to 50% after 180 days of unemployment for all spells beginning on July 15, 2012. Using Social Security data and a Differences-in-Differences approach, we find that reducing the RR by 10 percentage points (or 17%) increases workers' odds of finding a job by at least 41% relative to similar workers not affected by the reform. To put it differently, the reform reduced the mean expected unemployment duration by 5.7 weeks (or 14%), implying an elasticity of 0.86. We find strong behavioral effects as the reform reduced the expected unemployment duration right from the beginning of the unemployment spell. While the reform had no effect on wages, it did not decrease other measures of post-displacement job-match quality. After 15 months, the reform decreased unemployment insurance expenditures by 16%, about half of which are explained by job seekers' behavioral changes.

Keywords: labor supply, financial incentives, unemployment insurance replacement rate, hazard function models, wages and job-match quality, forward-looking non-employed workers, longitudinal social security data

JEL Classification: C41, J64

Suggested Citation

Sanz, Yolanda Rebollo and Rodriguez-Planas, Nuria, When the Going Gets Tough...Financial Incentives, Duration of Unemployment and Job-Match Quality. IZA Discussion Paper No. 10044, Available at SSRN: https://ssrn.com/abstract=2810455

Yolanda Rebollo Sanz (Contact Author)

Universidad Pablo de Olavide

Nuria Rodriguez-Planas

City University New York (CUNY), Queens College ( email )

65-30 Kissena Blvd
Flushing, NY 11367-1597
United States

HOME PAGE: http://https://sites.google.com/site/nuriarodriguezplanas/

IZA Institute of Labor Economics

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Bonn, D-53072
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