The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?

33 Pages Posted: 26 Feb 2007  

David Card

University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Raj Chetty

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER)

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: January 2007

Abstract

In this paper, we review the literature on the "spike" in unemployment exit rates around benefit exhaustion, and present new evidence based on administrative data for a large sample of job losers in Austria. We find that the way unemployment spells are measured has a large effect on the magnitude of the spike at exhaustion, both in existing studies and in our Austrian data. Spikes are typically much smaller when spell length is defined by the time to next job than when it is defined by the time spent on the unemployment system. In Austria, the exit rate from registered unemployment rises by over 200% at the expiration of benefits, while the hazard rate of re-employment rises by only 20%. The difference between the two measures arises because many individuals leave the unemployment register immediately after their benefits expire without returning to work. The modest spike in re-employment rates implies that most job seekers do not wait until their UI benefits are exhausted to return to work: fewer than 1% of jobless spells have an ending date that is manipulated to coincide with the expiration of UI benefits.

Keywords: unemployment duration, job search, unemployment insurance

JEL Classification: J64, J65

Suggested Citation

Card, David and Chetty, Raj and Weber, Andrea, The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job? (January 2007). IZA Discussion Paper No. 2590. Available at SSRN: https://ssrn.com/abstract=964980

David E. Card (Contact Author)

Institute for the Study of Labor (IZA)

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

National Bureau of Economic Research (NBER)

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University of California, Berkeley - Department of Economics ( email )

Room 3880
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510-642-5222 (Phone)
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Nadarajan (Raj) Chetty

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0708 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER)

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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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