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

When the Going Gets Tough ... Financial Incentives, Duration of Unemployment, and Job-Match Quality <p>ABSTRACT:</p><p>In the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60 percent to 50 percent after 180 days of unemployment for all spells beginning on or after July 15, 2012. Using Social Security data and a differences-in-differences approach, we find that reducing the RR by ten percentage points (or 17 percent) increases workers’ odds of finding a job by 41 percent 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 percent), implying an elasticity of 0.86. A regression discontinuity approach indicates that the reform increased the job-finding rate by 26 percent. 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 percent, about one-half of which are explained by job seekers’ behavioral changes. </p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

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

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Publisher
University of Wisconsin Press
Copyright
© Board of Regents of the University of Wisconsin System
ISSN
1548-8004

Abstract

<p>ABSTRACT:</p><p>In the aftermath of the Great Recession, the Spanish government reduced the replacement rate (RR) from 60 percent to 50 percent after 180 days of unemployment for all spells beginning on or after July 15, 2012. Using Social Security data and a differences-in-differences approach, we find that reducing the RR by ten percentage points (or 17 percent) increases workers’ odds of finding a job by 41 percent 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 percent), implying an elasticity of 0.86. A regression discontinuity approach indicates that the reform increased the job-finding rate by 26 percent. 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 percent, about one-half of which are explained by job seekers’ behavioral changes. </p>

Journal

Journal of Human ResourcesUniversity of Wisconsin Press

Published: Feb 8, 2020

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