Extended Unemployment Benefits and the Hazard to Employment (Working Paper)
Previous studies estimating the effect of generosity of unemployment insurance (UI) on unemployment duration has found that as job-seekers approach benefit exhaustion the probability of leaving unemployment increases sharply. Such “spikes” in the hazard rate has generally been interpreted as shirking among job-seekers. This, however, has been called into question by (Card et al. 2007b); claiming that these spikes rather reflect flight out of the labor force as benefits run out. Using exogenous variation in the potential duration of UI in Sweden, I estimate the effect of a 30 week extension of UI on duration in unemployment and on UI. Moreover, I investigate whether job-seekers manipulate the hazard to employment is such that it coincides with benefit exhaustion. I find that although increasing potential UI duration by 30 weeks increases actual take up by about 2.7 weeks, overall duration in unemployment and the probability of employment is largely unaffected. Further, I find no evidence of job-seekers timing reemployment such that it coincides with UI benefit exhaustion.