Does Extending Unemployment Benefits Improve Job Quality?

Transcription

1 Does Extending Unemployment Benefits Improve Job Quality? Arash Nekoei IIES Stockholm Andrea Weber CEU

2 Question Unemployment insurance (UI) increases unemployment duration Does UI also affect job quality?

3 Question Unemployment insurance (UI) increases unemployment duration Does UI also affect job quality? Folk wisdom: more generous UI higher job quality Mixed Empirical Findings Card, Chetty, Weber 2007; Lalive 2007; Schmieder, Von Wachter, Bender 2013

4 Overview I Postitive UI effect on post-employment wage Age-based discontinuity in UI rules in Austria 9 extra weeks of UI cause 0.5% wage increase

5 Overview I Postitive UI effect on post-employment wage Age-based discontinuity in UI rules in Austria 9 extra weeks of UI cause 0.5% wage increase II Directed-search model Two off-setting forces: Subsidized search causes unemployed to look for better job, but longer unemployment deteriorates job opportunities Reconcile our result with previous estimates Negative correlation bw wage and duration effects of UI

6 Overview I Postitive UI effect on post-employment wage Age-based discontinuity in UI rules in Austria 9 extra weeks of UI cause 0.5% wage increase II Directed-search model Two off-setting forces: Subsidized search causes unemployed to look for better job, but longer unemployment deteriorates job opportunities Reconcile our result with previous estimates Negative correlation bw wage and duration effects of UI III Mechanisms underlying the positive UI wage effect IV Policy implications: UI wage effect as fiscal externality

7 Data/Institutional background Austrian Unemployment and Social Security Registries Daily records of employment status and UI receipt Austrian UI system Benefit level: Replacement rate 55%, Benefit duration: Experience over UI duration Age the last n years in weeks 1 over over over 10 >=40 39

8 Empirical Research Design Identification: Discontinuity at age 40 Laid-off workers eligible for 30 or 39 weeks of UI as age 40 Sample: 1,738,789 job separations Presentation: 10-year Bandwidth and polynomial degree = 2 Robustness checks Optimal bandwidth and bias-corrected RD estimates Imbens and Kalyanaraman (2011) and Calonico et al. (2014) Experience over UI duration Age the last n years in weeks 1 over over over 10 >=40 39

9 Density RDD Validity Test I Distribution of Age Age at layoff

10 RDD Validity Test II Covariates Around UI Extension Threshold Log previous wage Age at layoff

11 Log previous wage RDD Validity Test III Predicted Wage change between jobs Age at layoff

12 UI Extension Effect on Non Employment Duration Non employment duration (days) Age at layoff

13 UI Extension Effect on Non Employment Duration Prob. of finding job within 39 weeks Age at layoff

14 UI Extension Effect on Wage Wage change between jobs Age at layoff

15 Prob(New wage > benefit level) UI Extension Effect on Wage Age at layoff

16 Effect of UI Extension from 30 to 39 Weeks Discontinuity at age 40 Nonemployment duration Dependent variable Find job within 39 weeks Wage change between jobs New wage > UI benefit Covariates (1) (2) (3) (4) No 1.932*** *** *** *** (0.526) ( ) ( ) ( ) Yes 1.918*** *** *** *** (0.466) ( ) ( ) ( ) Mean dep. var Observations 1,589,178 1,738,787 1,187,476 1,187,476

17 Placebo Test Pre Reform Discontinuity Wage change between jobs Age at layoff

18 Is the Order of Magnitude Reasonable? Estimated effect of UI extension: 0.5% wage increase and 2 extra days of search

19 Is the Order of Magnitude Reasonable? Estimated effect of UI extension: 0.5% wage increase and 2 extra days of search Benchmark: Risk-neutral agent, no leisure/search 2 (1 τ) w e }{{} MC = 2b + L (1 τ) w e }{{} MB w e w e = (1 α) 2 L = 0.14% where L : Duration of new job = 567 days α : b Net replacement rate = (1 τ) w e = 55%

20 Wage Effect of UI Extension Previous Literature 2.0% 1.5% Lalive % Card, et al 2007 NW 0.5% 0.0% UI Duration (weeks) % -1.0% Schmieder, et al % Schmieder, et al %

21 Target wage Without UI w τ Layoff Time

22 Target wage UI Effect w τ Δw τ Layoff Benefit Exhaustion Time

23 Target wage UI Effect In admin data, we observe target wage only when search is successful (The starting wage of the new job) Δw τ We can identify UI effect on average wage, w e w τ Layoff Benefit Exhaustion Time

24 Target wage UI Effect Wage Effect Δw e = λ.δw τ 0 Selectiveness w e : Average wage λ : Probability of finding a job before benefit exhaustion w τ Layoff Δw τ Benefit Exhaustion Time

25 Target wage With Negative Duration Dependence w τ Layoff Time

26 Target wage With Negative Duration Dependence Duration Dependence implies w τ (0) w e w τ Layoff Time

27 Target wage UI Effect With Duration Dependence Δw τ Layoff Benefit Exhaustion Time

28 Target wage UI Effect With Duration Dependence Δw e = λ Δw τ + Δλ (w τ -w e ) Δw τ Layoff Benefit Exhaustion Time

29 UI Extension Effect on Post-unemployment Wage w e }{{} Wage Effect = (+) { }} { λ w }{{} τ Selectiveness ( ) {}}{ + }{{} λ (w τ w e ) }{{} Duration Duration Effect Dependence λ : Hazard rate at time zero (λ = F (w τ, s)) w τ : Target wage at time zero w e : Expected wage (w e = E (w τ ))

30 Model Predictions I Negative force arises from duration dependence Structural duration dependence Changes in UI benefits over time UI wage effect can be positive or negative Explains variation in empirical estimates

31 Model Predictions II w e }{{} Wage Effect = (+) ( ) {}}{{}}{ λ w }{{ τ } + }{{} λ (w τ w e ) Selectiveness Duration Eff. Relative role of search effort and selectiveness in adjustment of search behavior Strong search effort response increases the duration effect thus strengthens negative force Population with similar job finding rate, but heterogeneity in search effort response Model predicts negative correlation of individual duration and wage effects

32 Negative correlation bw UI duration and UI wage effect Strategies for empirical tests Correlation of UI wage and UI duration effects across studies: meta-analysis Correlation within out sample: estimate effects across subsamples

33 UI effect on wage Wage vs. Non enmployment Duration Effects Results across studies Lalive(a) AW CCW SWB(b) Lalive(b) SWB(a) UI effect on non enmployment duration

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35 How does UI affect wages? Attenuation of wage drops versus wage increases Jobs in better firms or higher wages for the same job? Effect of UI on other job characteristics

36 UI Benefit Extension Attenuates Wage Drops UI effect on P(wage growth=x) UI Effect on PDF PDF (right axis) x P(wage growth=x)

37 Effects of Benefit Extension on Firm Sorting Firm-level Outcomes Individual level Change in Firm Size Share Male Av. wage log wage Res. wage Wage (coeff*100) Covariates No (14.870) (0.228) (0.125) (0.272) (0.316) (0.313) Yes (14.650) (0.194) (0.107) (0.237) (0.307) (0.266) Dep. Mean Observations 454, , , , , ,114

38 Effects of Benefit Extension on Mobility (coeff*100) Probability of changing Firm Industry Occupation Region Zip-code Covariates No (0.230) (0.196) (0.113) (0.149) (0.225) Yes (0.154) (0.167) (0.108) (0.140) (0.163) Dep. Mean Observations 1,589,178 1,589,174 1,589,177 1,521,919 1,566,755

39 Effects of Benefit Extension on Job Characteristics (coeff*100) Tenure Separation Wage Pos wage Full-time days in one year growth growth job Covariates No (4.034) (0.208) (0.035) (0.240) (0.237) Yes (3.802) (0.189) (0.034) (0.238) (0.200) Dep. Mean Observations 1,589,178 1,589,178 1,192,343 1,193, ,594

40 Policy Implications Two Fiscal Externalities: Traditional negative externality: Non-employment duration effect Positive externality: Wage effect

41 Policy Implications Two Fiscal Externalities: Traditional negative externality: Non-employment duration effect Positive externality: Wage effect Gov. Budget = L τ w }{{} Wage Externality (τw n + b ñ) }{{} Moral hazard Externality = ( ) w where L : Duration of the new job n : Duration of non-employment ñ : Part of n covered by UI ( = min (n, B) )

42 Conclusion Estimated a positive effect of UI duration on wages UI extension attenuates wage drops, no effect on wage raise Wage effect last throughout the first job Theoretically, average effect of UI on average job quality is determined by Relative role of search and selectiveness in finding a job Decline in job opportunity Normative Positive wage externality comparable to moral hazard externality