Abstract
This paper puts together the non-distortionary liquidity effect of unemployment insurance and job match quality. We identify a big impact on subsidized unemployment duration and a small impact on wages on the job that follows the unemployment spell. Wage gains are heterogeneous and concentrated on individuals at the bottom of the pre-unemployment income distribution. The non-distortionary nature of the liquidity effect reduces the pressure on low-income workers to accept lower productivity jobs.
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Notes
Using survey data from 1992 to 1997, Addison and Portugal (2007) study the impact of the Portuguese UI rules on transitions out of unemployment into employment. They do not study the impact on reemployment wages.
Within the regression discontinuity design approach, using reemployed workers might generate a selection bias only if it has a different effect on individuals to the left and to the right of the discontinuity threshold. In our case, validity tests for the regression discontinuity approach show no evidence of selection effects on the variables of interest.
The set of control variables included are listed in the notes to Table 2. We experimented with other bandwidths, but the results resemble those reported in the Table.
Notice that the GRR restriction applies only to pre-unemployment income, since in the post-unemployment period, we require only individuals to have a full-time job, meaning that the lower bound of reemployment wages is equal to the minimum wage.
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We thank Instituto de Informática (II) of the Portuguese Social Security for making the data available to us, in particular, João Morgado for insightful discussions. Opinions expressed herein do not necessarily reflect the views of the Banco de Portugal and II. Any errors are of our responsibility. The financial support of FCT (Fundação para a Ciência e a Tecnologia), Portugal, through UECE (Research Unit on Complexity and Economics) is acknowledge. This article is part of the Multi-annual Funding Project (POCTI/0436/2003).
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Centeno, M., Novo, Á.A. Reemployment wages and UI liquidity effect: a regression discontinuity approach. Port Econ J 8, 45–52 (2009). https://doi.org/10.1007/s10258-009-0038-8
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DOI: https://doi.org/10.1007/s10258-009-0038-8
Keywords
- Unemployment insurance
- Subsidized unemployment duration
- Reemployment wages
- Liquidity effect
- Regression discontinuity