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Shortening the potential duration of unemployment benefits and labor market out-comes: Evidence from a natural experiment in Germany (joint with Inna Petrunyk)

On 15th May 2017 (1-2pm) Christian Pfeifer, professor for economics at the Leuphana University Lüneburg, will give a presentation about “Shortening the potential duration of unemployment benefits and labor market out-comes: Evidence from a natural experiment in Germany" in Q4.245. Afterwards, Mr.Pfeifer will be available for questions and discussions. His presentation is part of https://wiwi.uni-paderborn.de/dep1/me/research/discussing-research/seam/.

Abstract:

This paper explores the effects of a major reform of unemployment benefits in Germany, implemented in 2006 as part of the so-called Hartz-Reforms. The reform induced a substantial reduction in the maximum entitlement length of regular unemployment benefits for older workers, while younger workers were not affected by the policy change. The design of the reform provides a natural experiment setting, on which the identification strategy relies. This study aims to investigate the impact of potential benefits duration on unemployment duration and, thus, contributes to the stream of literature analyzing the (dis)incentives provided by the unemployment insurance system. An important aspect of this work is the consideration of the labor market reform in a wider framework of institutional interactions, which allows us to distinguish between the intended and unintended effects of the policy change. Based on a difference-in-differences approach using administrative data, the results provide causal evidence for a significant decrease in number of days in unemployment benefits 1 (regular unemployment benefits) and increase in number of days in employment subject to social insurance contributions. However, the findings also suggest a significant increase in number of days in unemployment benefits 2 (unemployment assistance), which are granted to unemployed jobseekers upon exhaustion of unemployment benefits 1 and aim at providing them a living at the subsistence level. Transitions to unemployment benefits 2 represent rather an unintended consequence of the reform, limiting the success of a policy change that aims to increase labor supply via reductions in the generosity of the unemployment insurance system.

 

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