The Lock-In Effects of Part-Time Unemployment Benefits

Abstract

We ran a large randomized controlled experiment among about 150,000 recipients of unemployment benefits insurance in France in order to evaluate the impact of part-time unemployment benefits. We took advantage of the lack of knowledge of job seekers regarding this program and sent emails presenting the program. The information provision had a significant positive impact on the propensity to work while on claim, but reduced the unemployment exit rate, showing important lock-in effects into unemployment associated with part-time unemployment benefits. The importance of these lock-in effects implies that increasing the marginal tax rate on earnings from work while on claim in the neighborhood of its current level would not decrease labor supply and would decrease the expenditure net of taxes of the unemployment insurance agency.

The Unequal Consequences of Job Loss Across Countries

“…The French labor market has become segmented over the last three decades, with an increase of jobs under fixed-term contracts. Moreover, part-time unemployment (Activité Réduite) is increasingly used (Benghalem et al, 2021). Royer (2011), Frocrain (2018 and Brandily et al (2020) evaluate the impact of establishment closures on workers.…”

Should unemployment insurance cover partial unemployment?

“…Similarly, a French study also finds significant lock-in effects [12]. The authors exploit people's limited knowledge of the part-time benefit system by sending out information about part-time unemployment insurance to the treatment group, while the control group received no information.…”

“…The analysis and conclusions expressed in this article are those of the author and not necessarily those of Nordea. Version 2 of the article introduces a new "Pro," updates the figures, includes new research on lock-in effects and the results of these policies for disadvantaged groups, and adds new "Key references" [1], [4], [12], [13], [14].…”

Do Job Seekers Understand the Ui Benefit System (and Does it Matter)?

“…Unemployment insurance systems in modern labor markets are riddled with a multitude of rules and regulations governing job seekers' economic situation and their incentives to search for employment. These rules include detailed regulations specifying individuals' benefit level and the period of benefit payments (Card and Levine, 2000;Schmieder et al, 2012Schmieder et al, , 2016, job search requirements (Lalive et al, 2005;Arni et al, 2013), and allowances to work in part-time or short-term jobs while receiving public benefits (Caliendo et al, 2016;Benghalem et al, 2022). The rules and regulations serve important objectives in providing financial means to job seekers, while trying to minimize moral hazard problems that commonly arise in social insurance systems (Hopenhayn and Nicolini, 1997;Krueger and Meyer, 2002;Acemoglu and Shimer, 2000;Chetty, 2008).…”

“…Perhaps most closely related to our paper is a contemporaneous study by Benghalem et al (2022), who conduct a randomized controlled trial that informs unemployed workers in France about the existence of a part-time UI benefit program. In line with our results for long-term unemployed job seekers, they find that a higher take-up of marginal jobs among treated job seekers is associated with a reduced propensity to exit unemployment, pointing to a lock-in e↵ect of part-time insurance.…”