Skip to main content
Swiss Journal of Economics and Statistics
Download PDF

Effects of a Higher Replacement Rate on Unemployment Durations, Employment, and Earnings

Swiss Journal of Economics and Statistics volume 151, pages 1–25 (2015)Cite this article

Summary

This paper discusses the effects of a higher unemployment benefit replacement rate on unemployment durations, employment, and earnings. A reform of the Swiss unemployment insurance in July 2003 increased the replacement rate by up to 5.88 ppt for individuals who earned between 3,536 and 4,340 CHF and have no children, while it did not change the replacement rate for all other unemployed persons. This allows to study the effects of a higher replacement rate adopting a difference-in-differences (DiD) approach. The change in the replacement rate increased unemployment durations by 3.1 % — or roughly one week — for the treatment group. Women tend to react stronger than men. There is no effect of the level of the replacement rate on employment probabilities or earnings after the unemployment spell is finished.

References

  • Addison, John T., and Mckinley L. Blackburn (2000), “The Effects of Unemployment Insurance on Postunemployment Earnings”, Labour Economics, 7, pp. 1–33.

    Article  Google Scholar 

  • Arni, Patrick, Rafael Lalive, and Jan C. van Ours (2013), “How Effective Are Unemployment Benefit Sanctions? Looking Beyond Unemployment Exit”, Journal of Applied Econometrics, 28(7), pp. 1153–1178.

    Article  Google Scholar 

  • Atkinson, Anthony B., and John Micklewright (1991), “Unemployment Compensation and Labor Market Transitions: A Critical Review”, Journal of Economic Literature, 29(4), pp. 1679–1727.

    Google Scholar 

  • Barbanchon, Thomas Le (2012), “The Effect of the Potential Duration of Unemployment Benefits on Unemployment Exits to Work and Match Quality in France”, Working Papers 2012–21, Centre de Recherche en Economie et Statistique.

    Google Scholar 

  • Browning, Martin, and Thomas F. Crossley (2001), “The Life-Cycle Model of Consumption and Saving”, Journal of Economic Perspectives, 15, pp. 3–22.

    Article  Google Scholar 

  • Campbell, Donald T. (1969), “Prospective: Artifact and Control”, in Artifact in Behavioral Research, Robert Rosenthal and Ralph L Rosnow, eds., New York: Academic.

    Google Scholar 

  • Card, David, Raj Chetty, and Andrea Weber (2007), “Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market”, The Quarterly Journal of Economics, 122(4), pp. 1511–1560.

    Article  Google Scholar 

  • Carling, Kenneth, Bertil Holmlund, and Altin Vejsiu (2001), “Do Benefit Cuts Boost Job Finding? Swedish Evidence from the 1990s”, The Economic Journal, 111, pp. 766–790.

    Article  Google Scholar 

  • Centeno, Mario, and Alvares A. Novo (2009), “Reemployment Wages and UI Liquidity Effect: A Regression Discontinuity Approach”, Portuguese Economic Journal, 8, pp. 45–52.

    Article  Google Scholar 

  • Chetty, Raj (2008), “Moral Hazard versus Liquidity and Optimal Unemployment Insurance”, Journal of Political Economy, 116(2), pp. 173–234.

    Article  Google Scholar 

  • Degen, Kathrin, and Rafael Lalive (2014), “How Does a Reduction in Potential Benefit Duration Affect Medium-Run Earnings and Employment?”, mimeo, University of Lausanne.

    Google Scholar 

  • Eugster, Beatrix, Rafael Lalive, Andreas Steinhauer, and Josef Zweimüller (2011), “The Demand for Social Insurance: Does Culture Matter?”, The Economic Journal, 121(556), F413–F448.

    Article  Google Scholar 

  • Eugster, Beatrix, Rafael Lalive, and Josef Zweimüller (2009), “Does Culture Matter for Unemployment? Evidence from the Roesti Border”, Iza Working Paper.

    Google Scholar 

  • Eugster, Beatrix, and Raphael Parchet (2011), “Culture and Taxes: Towards Identifying Tax Competition”, Cahier de recherche, Deep.

    Google Scholar 

  • Fredriksson, Peter, and Bertil Holmlund (2006), “Improving Incentives in Unemployment Insurance: A Review of Recent Research”, Journal of Economic Surveys, 20(3), pp. 357–386.

    Article  Google Scholar 

  • Holmlund, Bertil (1998), “Unemployment Insurance in Theory and Practice”, Scandinavian Journal of Economics, 100(1), pp. 113–141.

    Article  Google Scholar 

  • Kroft, Kory, and Matthew J. Notowidigdo (2011), “Should Unemployment Insurance Vary with the Unemployment Rate? Theory and Evidence”, NBER Working Paper 17173.

    Book  Google Scholar 

  • Lalive, Rafael (2007), “Unemployment Benefits, Unemployment Duration, and Post-Unemployment Jobs: A Regression Discontinuity Approach”, American Economic Review, 97(2), pp. 108–112.

    Article  Google Scholar 

  • Lalive, Rafael, Jan C. van Ours, and Josef Zweimüller (2006), “How Changes in Financial Incentives Affect the Duration of Unemployment”, Review of Economic Studies, 73, pp. 1009–1038.

    Article  Google Scholar 

  • Lee, Myoung-jae, and Changhui Kang (2006), “Identification for Difference in Differences with Cross-Section and Panel Data”, Economics Letters, 92(2), pp. 270–276.

    Article  Google Scholar 

  • Meyer, Bruce D. (1990), “Unemployment Insurance and Unemployment Spells”, Econometrica, 58(4), pp. 757–782.

    Article  Google Scholar 

  • Meyer, Bruce D., and Wallace K. C. Mok (2007), “Quasi-Experimental Evidence on the Effects of Unemployment Insurance from New York State”, NBER Working Papers 12865, National Bureau of Economic Research, Inc.

    Book  Google Scholar 

  • Mortensen, Dale T. (1977), “Unemployment Insurance and Job Search Decisions”, Industrial and Labor Relations Review, 30(4), pp. 505–517.

    Article  Google Scholar 

  • Nickell, Stephen (1979), “Estimating the Probability of Leaving Unemployment”, Econometrica, 47(5), pp. 1249–1266.

    Article  Google Scholar 

  • Pissarides, Christopher A. (1994), “Search Unemployment with On-the-job Search”, The Review of Economic Studies, 61, pp. 457–475.

    Article  Google Scholar 

  • Roed, Knut, and Tao Zhang (2003), “Does Unemployment Compensation Affect Unemployment Duration?”, The Economic Journal, 113, pp. 190–206.

    Google Scholar 

  • Rosenbaum, Paul R. (1987), “The Role of a Second Control Group in an Observational Study”, Statistical Science, 2(3), pp. 292–316.

    Article  Google Scholar 

  • Schmieder, Johannes F., Till von Wachter, and Stefan Bender (2012), “Causes and Consequences of Unemployment: New Microeconomic Evidence and Perspectives”, American Economic Review: Papers & Proceedings, 102(3), pp. 514–519.

    Article  Google Scholar 

  • van Ours, Jan C., and Milan Vodopivec (2008), “Does Reducing Unemployment Insurance Generosity Reduce Job Match Quality?”, Journal of Public Economics, 92(3-4), pp. 684–695.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Center for Disability and Integration, University of St. Gallen, Rosenbergstrasse 51, CH-9000, St. Gallen, Switzerland

    Beatrix Eugster

Authors
  1. Beatrix Eugster
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Beatrix Eugster.

Additional information

I am also affiliated to CESifo. Without implicating them, I thank two anonymous referees, Marius Brülhart, Lukas Kauer, Rafael Lalive, Raphael Parchet, Michael Rosholm, Josef Zweimüller and seminar participants at IAB Nuremberg, Zurich, Engelberg, and Lausanne for helpful comments and discussions. I acknowledge funding from the Swiss National Science Foundation (Grant No. 100012-120356/1). I would also like to thank Jonathan Gast and David Sanchez at the Swiss State Secretariat for Economic Affairs for help concerning the data and information on institutional details.

Rights and permissions

Open Access  This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made.

The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder.

To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/.

Reprints and Permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Eugster, B. Effects of a Higher Replacement Rate on Unemployment Durations, Employment, and Earnings. Swiss J Economics Statistics 151, 1–25 (2015). https://doi.org/10.1007/BF03399412

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/BF03399412

JEL-Classification

  • J21
  • J64

Keywords

  • unemployment durations
  • unemployment insurance
  • replacement rate
  • post-unemployment outcomes