Working Paper: CEPR ID: DP1521
Authors: Rudolf Winter-Ebmer
Abstract: This paper studies the impact of a selective extension of unemployment benefit duration on the incidence of unemployment in Austria. As the new law applies only to elderly workers in certain regions of the country after June 1988, a quasi-experimental situation is created. Unemployment entry is found to rise by between four and eleven percentage points due to the new law. The findings are explained by a breach of an implicit contract; elderly workers receive wages above their marginal product in order to elicit higher effort. Dismissal of elderly workers is now easier because more generous unemployment insurance makes reputation loss for the firm less severe.
Keywords: unemployment insurance; unemployment entry; implicit contracts; elderly workers
JEL Codes: J14; J41; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Selective extension of unemployment benefits (J65) | Increase in unemployment entry rates among elderly workers (J26) |
| Selective extension of unemployment benefits (J65) | Breach of implicit contracts (D86) |
| Breach of implicit contracts (D86) | Increase in unemployment entry rates among elderly workers (J26) |
| Unemployment benefits (J65) | Higher risk of dismissal for more tenured workers (J63) |