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ESTIMATING INCENTIVE AND WELFARE EFFECTS OF NONSTATIONARY UNEMPLOYMENT BENEFITS
Author(s) -
LAUNOV ANDREY,
WÄLDE KLAUS
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12032
Subject(s) - unemployment , economics , microdata (statistics) , welfare , labour economics , matching (statistics) , incentive , wage , duration (music) , econometrics , demographic economics , macroeconomics , microeconomics , statistics , market economy , art , population , demography , mathematics , literature , sociology , census
The distribution of unemployment duration in our equilibrium matching model with spell‐dependent unemployment benefits displays time‐varying exit rates. Building on semi‐Markov processes, we translate these rates into an expression for the aggregate unemployment rate. Structural estimation using German microdata allows us to discuss the effects of an unemployment benefit reform (Hartz IV). The reform reduced unemployment by less than 0.1 percentage points. Contrary to general beliefs, the net wage for most skill and regional groups increased. Taking the insurance effect of unemployment benefits into account, however, the reform is welfare reducing for 76% of workers.