DOES AN INCREASE IN UNEMPLOYMENT INCOME LEAD TO LONGER UNEMPLOYMENT SPELLS? EVIDENCE USING DANISH UNEMPLOYMENT ASSISTANCE DATA* Ott-Siim Toomet ** August 2005 Working Papers of Eesti Pank No 9, 2005

Danish unemployment assistance depends on age; it increases by 70% when unemployed individuals turn 25. This feature is used to identify the impact of income on the unemployment-to-employment hazard rate. A mixed proportional hazard framework based on a 10% representative Danish registry data set is used. The results indicate that the income effect for females is negative and significant, corresponding to an income elasticity of -0.4. The effect for males is positive but insignificant.
JEL Code: J64, J65
Key words: welfare benefits, incentive effect, unemployment duration

*  The author of this article was granted Eesti Pank´s research award for 2005. The author is grateful to Knut Røed for his comments and suggestions.
** Address: Department of Economics, Tartu University, Narva 4-A210, Tartu 51009, Estonia.

Author's e-mail address: otoomet@ut.ee

The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.

Contents

1. Introduction

2. Short Overview of Danish Unemployment Income Legislation

3. Empirical Framework

3.1. Hazard Rate Framework

3.2. Income Effect

4. Data

4.1. Variables and Some Summary Statistics

4.2. Relationship Between UA and Age

4.3. Relationship Between the Hazard Rate and Age

5. Some Simulations and a Monte-Carlo Sensitivity Analysis

5.1. Anticipation Effect

5.2. Monte-Carlo Sensitivity Analysis

6. Results

6.1. Age Effect

6.1.1. Specification With Discontinuity

6.1.2. Specification Without Discontinuity

6.1.3. Parametric Differences in Differences Estimate

6.2. Other Effects

7. Discussion

8. Conclusions

References

Does an Increase in Unemployment Income Lead to Longer Unemployment Spells? Evidence Using Danish Unemployment Assistance Data, Working Papers of Eesti Pank No 9, 2005 (PDF*)

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