Do Unemployment Benefits Affect On‐The‐Job Search? Evidence from Labor Turnover Before Establishment Closures

20 Pages Posted: 22 May 2019

Date Written: July 2019

Abstract

We develop a job search model that predicts that potential job losers would reduce on‐the‐job search (OTJS) effort and job‐to‐job transitions before layoffs, in response to an increase in the potential duration of unemployment benefits (UB). To test this prediction, we exploit changes in the maximum potential duration of benefits in Germany to analyze how it affected labor turnover before establishment closings. The evidence supports the model prediction that workers with longer potential benefit duration are more likely to remain with their establishments until closure and to enter nonemployment. These findings indicate that the effects of UB on the OTJS decisions of potential job losers should be considered in the optimal design of the parameters of unemployment insurance systems.

JEL Classification: J63, J64, J65

Suggested Citation

Gutierrez, Italo A., Do Unemployment Benefits Affect On‐The‐Job Search? Evidence from Labor Turnover Before Establishment Closures (July 2019). Economic Inquiry, Vol. 57, Issue 3, pp. 1421-1440, 2019, Available at SSRN: https://ssrn.com/abstract=3392578 or http://dx.doi.org/10.1111/ecin.12772

Italo A. Gutierrez (Contact Author)

Independent Consultant ( email )

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