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Title:How Changes in Financial Incentives Affect the Duration of Unemployment PDF Logo
Authors:Lalive, Rafael
van Ours, Jan C.
Zweimüller, Josef
Issue Date:2004
Series/Report no.:IZA Discussion paper series 1363
Abstract:This paper studies how changes in the two key parameters of unemployment insurance – the benefit replacement rate (RR) and the potential duration of benefits (PBD) – affect the duration of unemployment. In 1989, the Austrian government made unemployment insurance more generous by changing, simultaneously, the maximum duration of regular unemployment benefits and the earnings replacement ratio. We find that increasing the replacement ratio has much weaker disincentive effects than increasing the maximum duration of benefits. We use these results to split up the total costs to unemployment insurance funds into costs due to changes in the unemployment insurance system and costs due to behavioral responses of unemployed workers. Results indicate that costs due to behavioral responses are substantial.
Subjects:maximum benefit duration
replacement rate
unemployment duration
unemployment insurance
policy change
JEL:C41
J65
J64
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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