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More jobseekers find jobs as they exhaust their unemployment benefit

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In order to reduce high unemployment levels, European policymakers may wish to limit the generosity of the unemployment system. On the one hand, the unemployment system must provide unemployed workers with benefits that are adequate; on the other hand, there is the wish to minimize the risk of distorting incentives to rapid reemployment.

The question of how the exhaustion of benefits impacts jobseekers’ incentives toward finding work is an important one; therefore, a new Campbell systematic review has addressed precisely this topic. The findings clearly show that jobseekers are significantly more likely to find a job as they approach the exhaustion date of their unemployment benefit, and that the incentive for finding work is strongest the closer jobseeker gets to the exhaustion date.

Clear evidence

Two months before the date of exhaustion of unemployment benefits, the rate of jobseekers moving from unemployment into employment increases by 10 percent. One month before exhaustion, this rate increases by 30 percent, and finally, in the actual month of exhaustion the increase in the rate into employment is 80 percent.

The rates however, increase from a low level. The overall probability of finding a job at this period in unemployment is low, as the chances of finding a job become lower the longer the spell of unemployment lasts.

These are the findings of a new Campbell systematic review conducted by SFI Campbell of the best available international research in the field.

The review team also examined the period prior to the two months before exhaustion as well as the period just after benefits have expired. Meanwhile, there were no significant effects at these time points. Hence, it appears that the incentive of benefit exhaustion on employment is strongest immediately prior to the date of exhaustion.

Increased job search incentive or reduced job match quality?

The main issues when assessing the impact of exhaustion of benefits are the underlying responsible factors. Is the identified increase in job finding rate driven by an increase in search intensity? Or is a lower job match quality responsible? For that reason, the review authors wanted to examine the impact of the exhaustion of benefits on the exit rate of the re-employment job (for example in the form of lower re-employment duration) and on the re-employment wage (for example in the form of acceptance of lower wages). Meanwhile, no studies provided data on the re-employment wage and only three studies measured the exit rate of the re-employment job. Based on this low number of studies, the evidence is inconclusive.

Thus an important question remains: That is, whether the increased job finding rate close to benefit exhaustion implies a significant decrease in the overall unemployment level. This depends on how quickly those who find a job return to unemployment. If an increased job finding rate is mainly driven by job seekers taking any job to stay afloat financially, a lower job match quality is to be expected. If the requirements of the new job do not match capabilities, resources, or needs of the worker, there is a considerable risk that the worker will not stay at the job for long, and hence return to unemployment. However, if the increase in job finding rate is due to an increased search effort, this risk of low re-employment duration becomes significantly smaller. In that sense, a higher job finding rate is not necessarily a sign that the job market is improving.

FACTS ABOUT THE REVIEW

 

The 12 studies included covers the US (2), Canada (1), Portugal (1), Spain (2), Slovenia (2), Germany (1), Czech Republic (1), Austria (1), and Poland (1).

The review covers a time period of 31 years (1976-2007).

All studies are primary quantitative studies with a comparison group (for example by means of legislative changes in entitlement). No randomised controlled trials were identified.

Both published and unpublished literature is included.

The study population is unemployed individuals who receive some sort of time-limited benefit during their period of unemployment. The effect is compared with unemployed individuals whose benefit expiration was not immediate.

47 studies were initially identified. Of these 47 studies, 12 studies could be used in the data synthesis. The main reasons for exclusions were that studies did not permit calculation of an effect size, studies used the same or overlapping sample of data and/or that studies could not be used in the data synthesis due to an overly high risk of bias.

The purpose of the review was two-fold: 1) to study the impact of the exhaustion of unemployment benefits on unemployed individuals’ exit rate out of unemployment and into employment; and 2) to study the duration of re-employment and re-employment wage. The identified studies only made it possible to make conclusions on the first point.

Equal incentives for men and women

The review authors investigated whether there are gender differences in the impact of the exhaustion of unemployment benefit. No significant effect was found. Hence, the incentive effect of benefit exhaustion on job finding is equal for men and women.

Behind the results

The results of this systematic review are based on twelve studies. All studies estimated an effect by comparing unemployed workers receiving some sort of unemployment benefits with an exhaustion date, with unemployed workers who were not faced with benefit exhaustion. Several studies used national legislative changes in entitlement to benefits, which make it possible to compare the unemployed workers’ labour market behavior immediately prior to, as well as shortly after, a change in the unemployment system was implemented.

The research team points out that it would have been ideal to be able also to consider the length of the new-found job and the salary for said job. This would provide a more accurate picture of the underlying factors responsible for the identified higher job finding rate. The authors' main conclusion remains, however, very clear: The incentive for jobseekers to find jobs increases as they exhaust their unemployment benefit. This goes for men and women.

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