DP10568 Does Extending Unemployment Benefits Improve Job Quality?

Author(s): Arash Nekoei, Andrea Weber
Publication Date: May 2015
Keyword(s): job search, regression discontinuity design, unemployment insurance, wages
JEL(s): H5, J3, J6
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10568

Contrary to standard search model predictions, prior studies failed to estimate a positive effect of unemployment insurance (UI) on reemployment wages. This paper estimates a positive UI wage effect exploiting an age-based regression discontinuity in Austrian administrative data. A search model incorporating duration dependence determines the UI wage effect as the balance between two offsetting forces: UI causes agents to seek higher-wage jobs, but also reduces wages by lengthening unemployment. This implies a negative relationship between the UI unemployment duration and wage effects, which holds empirically both in our sample and across studies, reconciling disparate wage-effect estimates. Empirically, UI raises wages by improving reemployment firms’ quality and attenuating wage drops.