The stigma associated with long-term unemployment spells could create large inefficiencies in labor markets. While the existing literature points toward large stigma effects, it has proven difficult ...to estimate causal relationships. Using data from afield experiment, we find that long-term unemployment spells in the past do not matter for employers' hiring decisions, suggesting that subsequent work experience eliminates this negative signal. Nor do employers treat contemporary short-term unemployment spells differently, suggesting that they understand that worker/firm matching takes time. However, employers attach a negative value to contemporary unemployment spells lasting at least nine months, providing evidence of stigma effects.
Since the so-called Hartz IV reforms around 2005 and during the global crisis of 2008/2009, the German labor market featured mainly declining unemployment rates. We develop a search and matching ...model with heterogeneous skills to explore the role of structural and cyclical policies for this performance. Calibrating unemployment benefits to approximate legislation before and after the reforms, we find a large reduction in unemployment and its duration, with the transition concluding after about three years. During the crisis, the extended use of short-time labor subsidies that prevent jobs from being destroyed is likely to have prevented strong increases in unemployment.
► The paper analyses the effects of the German labor market reforms of 2005. ► Labor market search and matching model along with skill heterogeneity. ► Focus on steady-state adjustment and responses to crisis 2008/2009. ► Reforms had strong effect on unemployment rate and duration and transition is fast. ► Labor market subsidies important factor in explaining German unemployment dynamics.
In 2003-05 the German government implemented a number of far-reaching labor market reforms y the so-called Hartz reforms. At the heart of the reform package was the Hartz IV law, which resulted in a ...significant cut in the unemployment benefits for the long-term unemployed. The paper develops a macroeconomic model with search and incomplete markets, calibrates the model economy to German data and institutions, and uses the calibrated model economy to simulate the effects of the Hartz reforms, and in particular Hartz IV, on the German labor market. The paper finds that the Hartz IV reform reduced the noncyclical unemployment rate in Germany by 1.4 percentage points. Employed workers benefited from the Hartz IV reform in welfare terms, but unemployed workers lost. It further finds that the Hartz I—III reforms reduced the noncyclical unemployment rate in Germany by 1.5 percentage points. Finally, the authors' analysis suggests that the Hartz reforms contributed to the good performance of the German labor market during the Great Recession.
Many countries have a two-tiered unemployment compensation system that provides earnings-related unemployment insurance for a limited period of time and less generous unemployment assistance ...thereafter. This study evaluates the effects of a reform in Finland that increased the level of unemployment assistance by 22%. The reform led to a drop of 9% in the unemployment exit hazard, which can be attributed to fewer exits to both employment and inactivity. The implied elasticities suggest that a 10% increase in unemployment assistance reduces the unemployment exit hazard by 4% and the job-finding hazard by 6%. These effects are relatively small compared to the existing evidence on the effects of unemployment insurance benefits.
In this paper, I present an exhaustive literature review on the empirical work that estimated the impact of the potential duration of unemployment insurance on unemployment duration, measured in a ...week‐to‐week elasticity. For each study, I include information on data—county, period of analysis, type of database, gender, and age, estimation—estimation model, unobserved heterogeneity, and source of identification, and average effect. The range of estimates is wide: from 0.02 to 1.3 weeks for each additional week of potential duration. This review suggests that larger estimates belong to studies analyzing North America before the 1990s, Europe in more recent periods, survey data, female, older individuals, using other estimation techniques than survival analysis, or survival analysis that account for unobserved heterogeneity.
This paper presents evidence that firms choose conservative financial policies partly to mitigate workers' exposure to unemployment risk. We exploit changes in state unemployment insurance laws as a ...source of variation in the costs borne by workers during layoff spells. We find that higher unemployment benefits lead to increased corporate leverage, particularly for labor-intensive and financially constrained firms. We estimate the ex ante, indirect costs of financial distress due to unemployment risk to be about 60 basis points of firm value for a typical BBB-rated firm. The findings suggest that labor market frictions have a significant impact on corporate financing decisions.
We discuss three important properties of panel data event study designs. First, assuming constant treatment effects before and/or after some event time, also known as binning, is a natural ...restriction, which identifies dynamic treatment effects in the absence of never‐treated units. Second, event study designs with binned endpoints and distributed‐lag models are numerically identical. Third, classic dummy variable event study designs can be generalized to models that account for multiple treatments of different signs and varying intensities. We demonstrate the practical relevance of our methodological points in an application studying the effects of unemployment benefit duration on job search effort.
We use high-frequency Google search data, combined with data on the announcement dates of non-pharmaceutical interventions (NPIs) during the COVID-19 pandemic in U.S. states, to disentangle the ...short-run direct impacts of multiple different state-level NPIs in an event study framework. Exploiting differential timing in the announcements of restaurant and bar limitations, non-essential business closures, stay-at-home orders, large-gatherings bans, school closures, and emergency declarations, we leverage the high-frequency search data to separately identify the effects of multiple NPIs that were introduced around the same time. We then describe a set of assumptions under which proxy outcomes can be used to estimate a causal parameter of interest when data on the outcome of interest are limited. Using this method, we quantify the share of overall growth in unemployment during the COVID-19 pandemic that was directly due to each of these state-level NPIs. We find that between March 14 and 28, restaurant and bar limitations and non-essential business closures can explain 6.0% and 6.4% of UI claims respectively, while the other NPIs did not directly increase own-state UI claims. This suggests that most of the short-run increase in UI claims during the pandemic was likely due to other factors, including declines in consumer demand, local policies, and policies implemented by private firms and institutions.
•We analyze how shutdown policies affected unemployment during the COVID-19 pandemic.•We use proxy data from Google Trends to disentangle the effects of six policies.•State-level policies caused 12.4% of unemployment insurance claims early on.•Restaurant limits and non-essential business closures had modest effects.•Other policies (e.g. stay-at-home orders, school closures) had no additional effect.
This paper uses readily accessible aggregate time series to measure the probability that an employed worker becomes unemployed and the probability that an unemployed worker finds a job, the ins and ...outs of unemployment. Since 1948, the job finding probability has accounted for three-quarters of the fluctuations in the unemployment rate in the United States and the employment exit probability for one-quarter. Fluctuations in the employment exit probability are quantitatively irrelevant during the last two decades. Using the underlying microeconomic data, the paper shows that these results are not due to compositional changes in the pool of searching workers, nor are they due to movements of workers in and out of the labor force. These results contradict the conventional wisdom that has guided the development of macroeconomic models of the labor market since 1990.
► The job finding rate is strongly procyclical. ► The employment exit probability is weakly countercyclical. ► This holds in models with and without a participation margin. ► This holds after accounting for worker heterogeneity.
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