How Changes in Potential Benefit Duration Affect Equilibrium Unemployment

CentER Discussion Paper No. 2006-94

30 Pages Posted: 24 Oct 2006

See all articles by Rafael Lalive

Rafael Lalive

University of Lausanne - Department of Economics (DEEP); IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Jan C. van Ours

Tilburg University - Department of Economics; University of Melbourne - Department of Economics

Josef Zweimüller

University of Zurich - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: October 2006

Abstract

This paper uses microdata to evaluate the impact of an increase in maximum benefit duration on the steady-state unemployment rate. We draw on policy changes in Austria that extended maximum benefit duration from 30 to 52 weeks for individuals above age 50 and from 30 to 39 weeks for individuals between ages 40 and 49. We use these changes to estimate the causal impact of benefit duration on labor market flows and find that (i) the policy changes lead to an increase in the steady-state unemployment rate between 20% and 50%; (ii) surprisingly, most of the increase is due to an increase in the inflow into unemployment, whereas the decrease in the outflow from unemployment is modest; (iii) the effects are stronger for women than for men, but are otherwise rather robust across population subgroups.

Keywords: maximum benefit duration, unemployment duration, unemployment inflow, equilibrium unemployment

JEL Classification: C41, J64, J65

Suggested Citation

Lalive, Rafael and van Ours, Jan C. and Zweimueller, Josef, How Changes in Potential Benefit Duration Affect Equilibrium Unemployment (October 2006). CentER Discussion Paper No. 2006-94. Available at SSRN: https://ssrn.com/abstract=939506 or http://dx.doi.org/10.2139/ssrn.939506

Rafael Lalive (Contact Author)

University of Lausanne - Department of Economics (DEEP) ( email )

BFSH1
Lausanne, 1015
Switzerland

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Jan C. Van Ours

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2880 (Phone)
+31 13 466 3042 (Fax)

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia

Josef Zweimueller

University of Zurich - Department of Economics ( email )

Zuerich, 8006
Switzerland
+411 634 3724 (Phone)
+411 634 4907 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

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