Sunday, October 14, 2007

UNEMPLOYMENT BENEFITS CAUSE A RISE IN UNEMPLOYMENT

A new study by Roope Uusitalo and Jouko Verho confirmed the well-known empirical facts regarding the unemployment and unemployment benefits - unemployment subsidies do not stimulate job search and re-employment but, instead, result in a growing length of unemployment duration.

In January 2003, unemployment insurance benefits in Finland were increased for workers with long employment track. On average, the benefit increased by 15 percent for the first 150 days of the spell. The outcome was a significant rise of duration period for those receiving high unemployment benefits. The authors find that the expected re-employment time increased by 31 days or about 11 percent.

Source:
Roope uusitalo, Jouko Verho: The effects of unemployment benefits on re-employment rates: Evidence from Finnish UI reform, Institute for Labor Market Policy Evaluation, Working Paper 2007:21 (link)

2 comments:

Anonymous said...

Hi Rok, there is a small misunderstanding, I went through the study and the finding of the authors was not higher unemployment (which was constant during the period of "experiment"), but lower rate of re-employment, in other words, duration of being unemployed was 11% longer. So the title is not quite correct. Just to let you know....

Rucho

Rocks said...

Thanks for the note. It also depends on how you define the effect of lower re-employment rate (the outcome of the analytical investigation). The fraction of those who did not opt the re-employment could perhaps sizzle the dependency on welfare services and this would probably not make them unemployed statistically. It'd be curious to review the methodology of the authors and see whether they set those parameters from an analytical perspective.

In sum, the effect of unemployment benefits is the same, since labor market is open and every day individual agents enter it. Lower re-employment rate, in that obvious case, means that they possess a disability to find a job in an appropriate period of time because of the disenhenced interest in seeking job due to higher unemployment benefits.

I think the message sounded more favorable if it was declared in the following way: higher benefits of unemployment reduce the ability of the individuals to search for the job accordingly.

Thanks for the note and enjoy your day,

Regards,
Rocks