Working Paper: CEPR ID: DP10568
Authors: Arash Nekoiei; Andrea Weber
Abstract: Contrary to standard search model predictions, prior studies failed to estimate a positive effect of unemployment insurance (UI) on reemployment wages. This paper estimates a positive UI wage effect exploiting an age-based regression discontinuity in Austrian administrative data. A search model incorporating duration dependence determines the UI wage effect as the balance between two offsetting forces: UI causes agents to seek higher-wage jobs, but also reduces wages by lengthening unemployment. This implies a negative relationship between the UI unemployment duration and wage effects, which holds empirically both in our sample and across studies, reconciling disparate wage-effect estimates. Empirically, UI raises wages by improving reemployment firms? quality and attenuating wage drops.
Keywords: Job Search; Regression Discontinuity Design; Unemployment Insurance; Wages
JEL Codes: H5; J3; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment Insurance (UI) extensions (J65) | Reemployment wages (J68) |
| Unemployment Insurance (UI) extensions (J65) | Quality of jobs obtained (J24) |
| Unemployment Insurance (UI) extensions (J65) | Likelihood of experiencing significant wage drops (J31) |
| Unemployment Insurance (UI) extensions (J65) | Chance of receiving moderate wage increases (J31) |
| Duration of unemployment (J64) | Wage outcomes (J31) |
| Unemployment Insurance (UI) extensions (J65) | Duration of unemployment (J64) |