Stuck in a trap? Long-term unemployment under two-tier unemployment compensation schemes

Nagl, Wolfgang and Weber, Michael (2016) Stuck in a trap? Long-term unemployment under two-tier unemployment compensation schemes. Ifo Working Paper 231, 42 p.

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We empirically investigate how two-tier unemployment compensation schemes affect the profile of re-employment hazards. We exploit the aggravation of an existing two-tier scheme in Germany in 2005 and estimate its impact on re-employment rates at different durations. For the short-term unemployed, the hazard rate increases and negative duration dependence declines. For the long-term unemployed, we find none and for certain groups of job seekers even negative impacts on the re-employment hazard. Our results indicate that two-tier unemployment compensation schemes might create a long-term unemployment trap: If employers rank applicants by their duration in unemployment, incentivizing all job seekers to exert higher search efforts may reduce the reemployment probabilities for the long-term unemployed.

Item Type: Discussion/ Working Paper (Unspecified)
Keywords: Unemployment insurance, two-tier unemployment compensation, unemployment duration, re-employment rate, Hartz reforms.
Classification Codes (e.g. JEL): [J640] Unemployment: Models, Duration, Incidence, and Job Search [J650] Unemployment Insurance; Severance Pay; Plant Closings [J680] Mobility, Unemployment, and Vacancies: Public Policy
Research Units: Former Research Units (until 2020) > Labor Market and Social Policy
Date Deposited: 09 Nov 2016 10:31
Last Modified: 09 Nov 2016 10:31

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