, Volume 160, Issue 4, pp 413-438,
Open Access This content is freely available online to anyone, anywhere at any time.

Why is There a Spike in the Job Finding Rate at Benefit Exhaustion?

Abstract

Putting a limit on the duration of unemployment benefits tends to introduce a “spike” in the job finding rate shortly before benefits are exhausted. Current theories explain this spike from workers’ behavior. We present a theoretical model in which also the nature of the job matters. End-of-benefit spikes in job finding rates are related to optimizing behavior of unemployed workers who rationally assume that employers will accept delays in the starting date of a new job, especially if these jobs are permanent. This gives some workers an incentive to not immediately start working after they have found a job. Instead they wait until their benefits expire. We use a dataset on Slovenian unemployment spells to test this prediction and find supporting evidence. We conclude that the spike in the job finding rate suggests that workers exploit unemployment insurance benefits for subsidized leisure.

This paper has benefited from comments of participants in workshops and seminars at Bocconi University (Milano), Melbourne University (Department of Economics), QUT (Brisbane), Australian National University (RSSS) and Tilburg University (Department of Economics), Universität Zürich (IEW), Munich (CES), Linz.
Jan Boone gratefully acknowledges financial support from NWO (grant number 453.07.003).