Discussion paper

DP10568 Does Extending Unemployment Benefits Improve Job Quality?

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.

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Citation

Weber, A and A Nekoei (2015), ‘DP10568 Does Extending Unemployment Benefits Improve Job Quality?‘, CEPR Discussion Paper No. 10568. CEPR Press, Paris & London. https://cepr.org/publications/dp10568