Estimating Incentive and Welfare Effects of Nonstationary Unemployment Benefits

Abstract

We formulate a general equilibrium matching model with spell-dependent unemployment bene…ts and endogenous search e¤ort. The model gives rise to an endogenous distribution of unemployment duration characterized by a time-varying hazard function. Using methods from the literature on Semi-Markov processes, we obtain an expression for the aggregate unemployment rate under heterogeneous search e¤ort. We perform structural estimation of the model using a German micro-data set (SOEP) and discuss the e¤ects of the recent unemployment bene…t reform (Hartz IV). Our results show that although the reform and economic growth have contributed to the reduction of the aggregate unemployment rate, aggregate welfare has gone down.JEL Codes: J 65, J 64, C 13

Are unemployment benefits harmful to the stability of working careers? The case of Spain

“…In this exercise we reduce these differences by 20 % in order to evaluate whether employment stability could change for reasons other than variations in the UIS and whether the gains in employment stability could be larger or smaller than the gains achieved with the previous change in the UI entitlement. From Krebs and Scheffel (2013), Krause and Uhlig (2012) or Launov and Wälde (2013) one can learn that it might be better to introduce reforms addressed to foster the labour demand and to improve the quality and quantity of active labour market policies as means to reduce job turnover and mean unemployment duration. With this simulation we are trying to illustrate this idea.…”

The German labor market during the Great Recession: Shocks and institutions

“…Krause and Uhlig (2012) and Krebs and Scheffel (2013) find that the Hartz IV (reform of the unemployment benefit system), lead to a decline of unemployment of 2.8 and 1.4 percentage points respectively. By contrast, Launov and Wälde (2013) only find an unemployment decline of 0.1 percentage points due to Hartz IV. In a follow-up study, Launov and Wälde (2016) identify Hartz III (reform of the Federal Employment Agency) as the key driving force for the decline of unemployment.…”

“…Thereby, our paper is both related to papers on the macroeconomic effects of the Hartz reforms and to papers that analyze sources of the German labor market miracle. The papers on the macroeconomic effects of the Hartz reforms (Krause and Uhlig, 2012, Krebs and Scheffel, 2013, Launov and Wälde, 2013, Launov and Wälde, 2016 agree that these reforms lead to a downward shift of the steady state unemployment rate in Germany. This is in line with out estimated positive labor market performance shocks after these reforms and prior to the Great Recession.…”

The Aggregate Effects of the Hartz Reforms in Germany

“…Using calibrated macro models, Krebs & Scheffel (2010) as well as Krause & Uhlig (2012) find that the Hartz reforms have reduced the equilibrium unemployment rate substantially. Launov & Wälde (2010), by contrast, argue that the effects are rather close to zero. Most empirical policy evaluations (Fertig et al 2007, Fahr & Sunde 2009, Klinger & Rothe 2012, on the other hand, are based on regional and/or occupational panel data from the Federal Employment Agency.…”