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The effect of the generosity of unemployment insurance on unemployment duration and match quality

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The effect of the generosity of unemployment insurance on unemployment duration and match quality

Author: Thomas Le Barbanchon

Contact: thomas.le-barbanchon@ipp.eu, roland.rathelot@ipp.eu

Summary

The first objective of unemployment insurance is to smooth workers’ income over unemployment spells. Beyond this insurance motive, we question the efficiency of such policy. Theory tells us that more generous unemployment benefits slow down unemployment exits to job and increase match quality. This study quantifies empirically the effect of increasing potential benefit duration in France between 2000 and 2002. When potential benefit duration increases from 7 to 15 months, the job finding rate decreases by 28% (yielding an increase in unemployment duration by 2 months and a half), while the future employment stability and wage are not significantly affected.

Highlights

  • When the potential unemployment benefit duration increases from 7 to 15 months, jobseekers stay unemployed 2 months and a half longer.
  • This rise in unemployment duration is not associated with an increase in match quality.