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  4. March 2016
  5. The Effect of Unemployment Benefits and Nonemployment Durations on Wages

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

The Effect of Unemployment Benefits and Nonemployment Durations on Wages

  • Johannes F. Schmieder
  • Till von Wachter
  • Stefan Bender
American Economic Review
vol. 106, no. 3, March 2016
(pp. 739–77)
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Abstract

We estimate that unemployment insurance (UI ) extensions reduce reemployment wages using sharp age discontinuities in UI eligibility in Germany. We show this effect combines two key policy parameters: the effect of UI on reservation wages and the effect of nonemployment durations on wage offers. Our framework implies if UI extensions do not affect wages conditional on duration, then reservation wages do not bind. We derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects. The effect of UI on wages we find arises mainly from substantial negative nonemployment duration effects. (JEL J31, J64, J65)

Citation

Schmieder, Johannes F., Till von Wachter, and Stefan Bender. 2016. "The Effect of Unemployment Benefits and Nonemployment Durations on Wages." American Economic Review, 106 (3): 739–77. DOI: 10.1257/aer.20141566

Additional Materials

JEL Classification

  • J31 Wage Level and Structure; Wage Differentials
  • J64 Unemployment: Models, Duration, Incidence, and Job Search
  • J65 Unemployment Insurance; Severance Pay; Plant Closings