Do low-wage workers react less to longer unemployment benefits? Quasi-experimental evidence

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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 suggest a hump-shape response of unemployment duration over the one-year pre-unemployment wage distribution; individuals at the bottom and top of the wage distribution reacted less than those in the interquartile range. This behaviour of job searchers is consistent with labour 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.

Original languageEnglish
Pages (from-to)185-207
Number of pages23
JournalOxford Bulletin of Economics and Statistics
Volume76
Issue number2
DOIs
Publication statusPublished - 1 Apr 2014

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