The primary aim of unemployment benefit is to provide an income replacement for people who have lost their jobs through no fault of their own. Beyond this primary role, the question arises as to the effectiveness of this scheme. In theory, more generous unemployment benefits slow the rate at which people leave unemployment but are also likely to improve the quality of the jobs they find. This study empirically measures the impact of an extension to the maximum duration of unemployment benefit in France between 2000 and 2002. When the duration of benefit is extended from 7 to 15 months, the rate of return to work fell by 28 per cent (representing an increase in the duration of unemployment of around two and a half months), whilst the stability of the new job and the wage received did not improve significantly.
The impact of generous unemployment benefit schemes
Presentation
Key Results
- When the period for which unemployment benefit is paid increases from 7 to 15 months, the duration of unemployment for claimants increases by around two and a half months.
- This increase in the duration of unemployment is not accompanied by an improvement in the quality of the jobs found.
Method and Data
Method
The effect of the maximum duration of benefits is estimated by comparing the outcomes of new claimants in two unemployment insurance schemes between 2000 and 2002. The study period is limited by the availability of data. During this period, if a new claimant had worked for between 6 and 8 months in the year prior to becoming unemployed, they were entitled to benefits for a maximum of 7 months (scheme 2, according to the unemployment insurance classification). If they had worked for more than 8 months in the previous year, they were eligible for benefits for 15 months (scheme 3, according to the same classification).
In order to isolate the causal effect of an extension to the maximum benefit period, the authors compare the outcomes of Category 2 claimants who would have been in Category 3 had they worked one month longer (i.e. claimants who had worked between 7 and 8 months) with the outcomes of Category 3 claimants who would have been in Category 2 had they worked one month less (i.e. claimants who had worked between 8 and 9 months). Broadly speaking, this estimation procedure, which makes use of the discontinuous nature of the rule for determining the duration of benefits, restricts the comparison to claimants who are close to the eligibility threshold.
Data
To implement this estimation procedure, the authors draw on a new statistical source combining the follow-up records of jobseekers registered with Pôle Emploi and firms’ employment declarations (the so-called FHDADS statistical file). These data make it possible to determine the length of time spent in employment prior to the period of unemployment, to better identify cases of people returning to work amongst those who have been removed from Pôle Emploi’s registers, and to measure the quality of the new job (job stability and salary received).
and salary received).
