Do unemployment benefits promote or hinder job reallocation?

Tito Boeri, Mario Macis

Research output: Contribution to journalArticle

Abstract

According to recent and largely untested theories, unemployment benefits (UBs) could improve the extent and quality of job reallocation even at the cost of increasing unemployment. In this paper, we use a new set of yearly panel data from a large number of countries to evaluate empirically the relationship between unemployment benefits and job reallocation. Unlike previous work assessing the effects of UBs on labor market stocks, we focus on flows and rely on policy "experiments," notably the introduction from scratch of unemployment benefits in many countries. We exploit the longitudinal nature of our data to lessen the potentially important selection, endogeneity, and omitted variable problems. We find a positive, sizable, and significant effect of the introduction of UBs on job reallocation, arising mainly from the job destruction margin although this effect fades away over time. These findings appear to be robust to changes in the countries in the sample, control variables or estimation methods. We discuss to what extent our results are consistent with equilibrium matching models with or without endogenous sorting of workers into jobs providing entitlement to UBs and stochastic job matching.

Original languageEnglish (US)
Pages (from-to)109-125
Number of pages17
JournalJournal of Development Economics
Volume93
Issue number1
DOIs
StatePublished - Sep 1 2010

Keywords

  • Job reallocation
  • Matching models
  • Unemployment benefits

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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