Working Paper: CEPR ID: DP7067
Authors: Barbara Petrongolo
Abstract: This paper investigates long-term returns from unemployment compensation, exploiting variation from the UK JSA reform of 1996, which implied a major increase in job search requirements for eligibility and in the related administrative hurdle. Search theory predicts that such changes should raise the proportion of non-claimant nonemployed, with consequences on search effort and labor market attachment, and lower the reservation wage of the unemployed, with negative effects on post-unemployment wages. I test these ideas on longitudinal data from Social Security records (LLMDB). Using a difference in differences approach, I find that individuals who start an unemployment spell soon after JSA introduction, as opposed to six months earlier, are 2.5-3% more likely to move from unemployment into Incapacity Benefits spells, and 4-5% less likely to have positive earnings in the following year. This latter employment effect only vanishes four years after the initial unemployment shock. Also, annual earnings for the treated individuals are lower than for the non treated. These results suggest that while tighter search requirements were successful in moving individuals off unemployment benefits, they were not successful in moving them onto long-lasting or better jobs, with fairly long lasting unintended consequences on a number of labor market outcomes.
Keywords: Job Search; Post-Unemployment Earnings; Unemployment Compensation
JEL Codes: J31; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Introduction of the JSA (Y20) | Outflow from claimant unemployment (J65) |
| Introduction of the JSA (Y20) | Weeks worked one year later (J22) |
| Introduction of the JSA (Y20) | Post-unemployment annual earnings (J65) |
| Starting an unemployment spell shortly after the JSA introduction (J65) | Claiming incapacity benefits (H55) |
| Outflow from claimant unemployment (J65) | Weeks worked one year later (J22) |
| Outflow from claimant unemployment (J65) | Post-unemployment annual earnings (J65) |