Andrea Weber (University of Mannheim)

“Does Extending Unemployment Benefits Improve Job Quality?”

abstract

Contrary to standard search model predictions, prior studies failed to estimate a positive effectof unemployment insurance (UI) on reemployment wages. This paper estimates a positive UIwage effect exploiting an age-based regression discontinuity in Austrian administrative data. Asearch model incorporating duration dependence determines the UI wage effect as the balance betweentwo offsetting forces: UI causes agents to seek higher-wage jobs, but also reduces wages bylengthening unemployment. This implies a negative relationship between the UI unemploymentdurationand wage effects, which holds empirically both in our sample and across studies, reconcilingdisparate wage-effect estimates. Empirically, UI raises wages by improving reemploymentfirms’ quality and attenuating wage drops.