Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution

By Lukas Inderbitzin, S. Staubli, Josef Zweimüller. Social Science Research Network, 2016

122 citations recorded by the source corpus.

This paper explores how extended unemployment insurance (UI) benefits targeted to older workers affect early retirement and social welfare. The trade-off of optimal UI between consumption smoothing and moral hazard requires accounting for the entire early retirement system, which often includes extended UI and relaxed access to disability insurance (DI). We argue that extended UI generates program complementarity (increased take-up of UI followed by DI and/or regular retirement benefits) and program substitution (increased take-up of UI instead of DI). Exploiting Austria's regional extended benefit program, which extended regular UI benefits to up to 4 years, we find: (i) program complementarity is quantitatively important for workers aged 50+; and (ii) program substitution is quantitatively relevant for workers aged 55+. We derive a simple rule for optimal UI that accounts for program complementarity and program substitution. Using the sufficient statistics approach, we conclude that UI for older workers was too generous and the regional extended benefit program was a suboptimal policy.

Subfields: Demography, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/87a369cb0d5c369187cbe16a507169bd4abe7904

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Demography

In Economics and Econometrics

In General Health Professions

Citations in the corpus

Social Support Substitution and the Earnings Rebound: Evidence from a Regression Discontinuity in Disability Insurance Reform (2011, background): “24 Important exceptions are Campolieti and Riddell (2012), who show a labor supply response to the increase in the earnings exemption (a pure substitution effect), and Marie and Vall Castello (2012), who measure a labor supply response to a pure increase in DI benefits (an income effect).”
Market Externalities of Large Unemployment Insurance Extension Programs (2013, unknown): “potential complementarities with the REBP program that are susceptible to affect search effort and labor supply in non-trivial ways (Inderbitzin et al. [2013]).”
Are Risk Preferences Stable Across Contexts? Evidence from Insurance Data (2011, methodology): “For instance, Atanu Saha (1997) uses data on production decisions to estimate firms’ risk preferences and Raj Chetty (2006) estimates risk aversion using data on labor supply decisions.”