Equilibrium unemployment and the duration of unemployment benefits
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This paper uses microdata to evaluate the impact on the steady-state unemployment rate of an increase in maximum benefit duration. We evaluate a policy change in Austria that extended maximum benefit duration and use this policy change to estimate the causal impact of benefit duration on labor market flows. We find that the policy change leads to a significant increase in the steady-state unemployment rate and, surprisingly, most of this increase is due to an increase in the inflow into rather than the outflow from unemployment.
KeywordsBenefit duration Unemployment flows Equilibrium unemployment
JEL ClassificationC41 J64 J65
We thank the editor, Christian Dustmann, and three anonymous referees for helpful comments and suggestions. Andreas Steinhauer and Oliver Ruf did excellent research assistance. Financial support by the Austrian Science Fund (National Research Network S103: “The Austrian Center for Labor Economics and the Analysis of the Welfare State”) is gratefully acknowledged.
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