Journal of Population Economics

, Volume 24, Issue 4, pp 1385–1409 | Cite as

Equilibrium unemployment and the duration of unemployment benefits

  • Rafael Lalive
  • Jan C. van Ours
  • Josef Zweimüller
Original Paper


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.


Benefit duration Unemployment flows Equilibrium unemployment 

JEL Classification

C41 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.


  1. Adamchik V (1999) The effect of unemployment benefits on the probability of re-employment in Poland. Oxf Bull Econ Stat 61(1):95–108CrossRefGoogle Scholar
  2. Addison JT, Portugal P (2004) How does the unemployment insurance system shape the time profile of jobless duration? Econ Lett 85(2):299–234CrossRefGoogle Scholar
  3. Anderson PM, Meyer BD (1997) Unemployment insurance takeup rates and the after-tax value of benefits. Q J Econ 112(3):913–937CrossRefGoogle Scholar
  4. Card DE, Levine PB (2000) Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program. J Public Econ 78(1–2):107–138CrossRefGoogle Scholar
  5. Carling K, Edin P-A, Harkman A, Holmlund B (1996) Unemployment duration, unemployment benefits, and labor market programs in Sweden. J Public Econ 59(3):313–334CrossRefGoogle Scholar
  6. Christofides LM, McKenna CJ (1995) Unemployment insurance and moral hazard in employment. Econ Lett 49(2):205–210CrossRefGoogle Scholar
  7. Christofides LM, McKenna CJ (1996) Unemployment insurance and job duration in Canada. J Labor Econ 14(2):286–312CrossRefGoogle Scholar
  8. Fredriksson P, Holmlund B (2003) Improving incentives in unemployment insurance: a review of recent research, IFAU working paper No.5Google Scholar
  9. Fredriksson P, Holmlund B (2006) Improving incentives in unemployment insurance: a review of recent research. J Econ Surv 20(3):357–386CrossRefGoogle Scholar
  10. Green DA, Riddell WC (1997) Qualifying for unemployment insurance: an empirical analysis. Econ J 107(440):67–84CrossRefGoogle Scholar
  11. Green DA, Sargent TC (1998) Unemployment insurance and job durations: seasonal and non-seasonal jobs. Can J Econ 31(2):247–278CrossRefGoogle Scholar
  12. Grossman JB (1989) The work disincentive effect of extended unemployment compensation: recent evidence. Rev Econ Stat 71(1):159–164CrossRefGoogle Scholar
  13. Ham J, Rea S (1987) Unemployment insurance and male unemployment duration in Canada. J Labor Econ 5:325–353CrossRefGoogle Scholar
  14. Hunt J (1995) The effect of unemployment compensation on unemployment duration in Germany. J Labor Econ 13(1):88–120CrossRefGoogle Scholar
  15. Katz L, Meyer B (1990) The impact of the potential duration of unemployment benefits on the duration of unemployment. J Public Econ 41(1):45–72CrossRefGoogle Scholar
  16. Lalive R, Zweimüller J (2004a) Benefit entitlement and the labor market: evidence from a large-scale policy change. In: Agell J, Keene M, Weichenrieder A (eds) Labor market institutions and public policy 2003. MIT, Cambridge, pp 63–100Google Scholar
  17. Lalive R, Zweimüller J (2004b) Benefit entitlement and unemployment duration: the role of policy endogeneity. J Public Econ 88(12):2587–2616CrossRefGoogle Scholar
  18. Lalive R, van Ours JC, Zweimüller J (2006) How changes in financial incentives affect the duration of unemployment. Rev Econ Stud 73(4):1009–1038CrossRefGoogle Scholar
  19. Layard R, Nickell S (1999) Labor market institutions and economic performance. In: Ashenfelter O, Card D (eds) Handbook of labor economics, vol. 3C, pp 3029–3084Google Scholar
  20. Meyer BD (1990) Unemployment insurance and unemployment spells. Econometrica 58(4):757–782CrossRefGoogle Scholar
  21. Moffitt R (1985) Unemployment insurance and the distribution of unemployment spells. J Econom 28(1):85–101CrossRefGoogle Scholar
  22. Moffitt R, Nicholson W (1982) The effect of unemployment insurance on unemployment: the case of federal supplemental benefits. Rev Econ Stat 64(1):1–11CrossRefGoogle Scholar
  23. Mortensen DT (1977) Unemployment insurance and job search decisions. Ind Labor Relat Rev 30(4):505–517CrossRefGoogle Scholar
  24. Mortensen DT, Pissarides CA (1994) Job creation and job destruction in the theory of unemployment job creation and job destruction in the theory of unemployment. Rev Econ Stud 61(3):397–415CrossRefGoogle Scholar
  25. Nickell S, Layard R (1999) Labor market institutions and economic Performance. In: Ashenfelter O, Card D (eds) Handbook of labor economics. Elsevier, Amsterdam, pp 3029–3084Google Scholar
  26. OECD (1999) Benefit systems and work incentives, ParisGoogle Scholar
  27. Pissarides CA (2000) Equilibrium unemployment theory, 2nd edn. MIT, CambridgeGoogle Scholar
  28. Puhani PA (2000) Poland on the dole: the effect of reducing the unemployment benefit entitlement period during transition. J Popul Econ 13(1):35–44CrossRefGoogle Scholar
  29. Roed K, Zhang T (2003) Does unemployment compensation affect unemployment duration? Econ J 113(484):190–206CrossRefGoogle Scholar
  30. Van Ours JC, Vodopivec M (2006) How shortening the potential duration of unemployment benefits entitlement affects the duration of unemployment: evidence from a natural experiment. J Labor Econ 24(2):351–378CrossRefGoogle Scholar
  31. Winter-Ebmer R (1998) Potential unemployment benefit duration and spell length: lessons from a quasi-experiment in Austria. Oxf Bull Econ Stat 60(1):33–45CrossRefGoogle Scholar
  32. Winter-Ebmer R (2003) Benefit duration and unemployment entry: a quasi-experimental evidence for Austria. Eur Econ Rev 47(2):259–273CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  • Rafael Lalive
    • 1
  • Jan C. van Ours
    • 2
  • Josef Zweimüller
    • 3
  1. 1.Faculty of Business and EconomicsUniversity of Lausanne, CEPR and IZALausanneSwitzerland
  2. 2.Department of Economics, CentERTilburg University, CEPR and IZATilburgThe Netherlands
  3. 3.Institute for Empirical Research in EconomicsUniversity of Zurich, CEPR and IZAZurichSwitzerland

Personalised recommendations