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Bringing Them In or Pushing Them Out? The Labor Market Effects of Pro-cyclical Unemployment Assistance Changes (WP-22-33)

Gerard Domènech-Arumí and Silvia Vannutelli

The researchers exploit an unanticipated labor market reform in 2012 Spain to estimate the effects of procyclical changes in long-term unemployment assistance (UA). The reform raised the minimum age to receive unlimited-duration UA from 52 to 55. Using a difference-in-differences design, they document that shorter benefits caused (i) shorter non-employment duration, especially among younger workers; (ii) higher labor force exit and other programs' take-up, especially among older workers; (iii) lower re-employment wages. The reform induced moderate government savings. The authors’ results highlight how considering the interplay with labor market conditions is crucial when designing long-term benefit schedules affecting workers close to retirement.

Gerard Domènech-Arumí, Postdoctoral Fellow, European Center for Advanced Research in Economics and Statistics, Université Libre de Bruxelles

Silvia Vannutelli, Assistant Professor of Economics and IPR Fellow, Northwestern University

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