American Economic Review Vol. 106 No. 3 2016

The Effect of Unemployment Benefits and Nonemployment Durations on Wages

Johannes F. Schmieder¹; Till von Wachter²; Stefan Bender³

¹ Boston University, 270 Bay State Road, Boston, MA 02115, NBER, and IZA (e-mail: ) · ² University of California, Los Angeles, 8283 Bunche Hall, Los Angeles, CA 90095, NBER, CEPR, and IZA (e-mail: ) · ³ Deutsche Bundesbank, Mainzer Landstrasse 16,60325 Frankfurt, Germany (e-mail: )

Abstract

We estimate that unemployment insurance (UI) extensions reduce reemployment wages using sharp age discontinuities in UI eligibility in Germany. We show this effect combines two key policy parameters: the effect of UI on reservation wages and the effect of nonemployment durations on wage offers. Our framework implies if UI extensions do not affect wages conditional on duration, then reservation wages do not bind. We derive resulting instrumental variable estimates for the effect of nonemployment durations on wage offers and bounds for reservation wage effects. The effect of UI on wages we find arises mainly from substantial negative nonemployment duration effects.

DOI

10.1257/aer.20141566

Volume

106

Issue

3

Pages

739-777

Language

en

Sources

openalex bibtex:phds-export.bib crossref

Cite

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