Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence

Mário Centeno () and Alvaro A. Novo ()
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Alvaro A. Novo: Banco de Portugal

No 6992, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The fact that unemployed workers have different abilities to smooth consumption entails heterogeneous responses to extended unemployment benefits. Our empirical exercise explores a quasi-experimental setting generated by an increase in the benefits entitlement period. The results point towards a hump-shape response of unemployment duration over the one-year pre-unemployment wage distribution; individuals at the bottom and at the top of the wage distribution reacted less than those in the interquartile range. This behavior of job searchers is consistent with labor supply models with unemployment insurance and savings. It questions the optimality of very long entitlement periods to target the unemployment experiences of low-wage workers.

Keywords: unemployment duration; liquidity effect; unemployment insurance; entitlement extension (search for similar items in EconPapers)
JEL-codes: J22 J64 J65 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2012-11
New Economics Papers: this item is included in nep-ias and nep-lab
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Published - published in: Oxford Bulletin of Economics and Statistics, 2014, 76(2), 185–207

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Journal Article: Do Low-Wage Workers React Less to Longer Unemployment Benefits? Quasi-Experimental Evidence (2014)
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