Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany

50 Pages Posted: 6 Feb 2018

See all articles by Inna Petrunyk

Inna Petrunyk

Leuphana University of Lueneburg

Christian Pfeifer

Leuphana University of Lueneburg; IZA Institute of Labor Economics

Abstract

This paper explores the effects of a major reform of unemployment benefits in Germany on the labor market outcomes of individuals with some health impairment. The reform induced a substantial reduction in the potential duration of regular unemployment benefits for older workers. This work analyzes the reform in a wider framework of institutional interactions, which allows us to distinguish between its intended and unintended effects. Our results provide causal evidence for a significant decrease in the number of days in unemployment benefits and increase in the number of days in employment. However, they also suggest a significant increase in the number of days in unemployment assistance, granted upon exhaustion of unemployment benefits. Transitions to unemployment assistance represent an unintended effect, limiting the success of a policy change that aims to increase labor supply via reductions in the generosity of the unemployment insurance system.

Keywords: policy evaluation, labor market reform, unemployment insurance, difference-in-differences

JEL Classification: I1, J2, J65

Suggested Citation

Petrunyk, Inna and Pfeifer, Christian, Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany. IZA Discussion Paper No. 11300, Available at SSRN: https://ssrn.com/abstract=3117304 or http://dx.doi.org/10.2139/ssrn.3117304

Inna Petrunyk (Contact Author)

Leuphana University of Lueneburg

Scharnhorststraße 1
Wilschenbrucher Weg 69
Lüneburg, 21335
Germany

Christian Pfeifer

Leuphana University of Lueneburg ( email )

Scharnhorststrasse 1
Lüneburg, 21335
Germany

IZA Institute of Labor Economics ( email )

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

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