Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits

47 Pages Posted: 8 Jun 2010

See all articles by Andrey Launov

Andrey Launov

University of Wuerzburg; IZA Institute of Labor Economics

Klaus Wälde

University of Mainz; CESifo (Center for Economic Studies and Ifo Institute); UCL at Louvain la Neuve

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2010

Abstract

The distribution of unemployment duration in our equilibrium matching model with spell-dependent unemployment benefits displays a time-varying exit rate. Building on Semi-Markov processes, we translate these exit rates into an expression for the aggregate unemployment rate. Structural estimation using a German micro-data set (SOEP) allows us to discuss the effects of a recent unemployment benefit reform (Hartz IV). The reform reduced unemployment by only 0.3%. Contrary to general beliefs, we find that both employed and unemployed workers gain (the latter from an intertemporal perspective). The reason is the rise in the net wage caused by more vacancies per unemployed worker.

Keywords: non-stationary unemployment benefits, endogenous effort, matching model, structural estimation, Semi-Markov process

JEL Classification: E24, J64, J68, C13

Suggested Citation

Launov, Andrey and Wälde, Klaus, Estimating Incentive and Welfare Effects of Non-Stationary Unemployment Benefits (May 1, 2010). CESifo Working Paper Series No. 3069, Available at SSRN: https://ssrn.com/abstract=1621566

Andrey Launov (Contact Author)

University of Wuerzburg ( email )

Sanderring 2
Würzburg, D-97070
Germany

IZA Institute of Labor Economics

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

Klaus Wälde

University of Mainz ( email )

Mainz School of Management and Economics
Mainz, 55128
Germany
+49 6131 3920143 (Phone)

HOME PAGE: http://www.waelde.com

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UCL at Louvain la Neuve

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