The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?

By David Card, Raj Chetty, Andrea Weber. Social Science Research Network, 2007

304 citations recorded by the source corpus.

In this paper, we review the literature on the "spike" in unemployment exit rates around benefit exhaustion, and present new evidence based on administrative data for a large sample of job losers in Austria. We find that the way unemployment spells are measured has a large effect on the magnitude of the spike at exhaustion, both in existing studies and in our Austrian data. Spikes are typically much smaller when spell length is defined by the time to next job than when it is defined by the time spent on the unemployment system. In Austria, the exit rate from registered unemployment rises by over 200% at the expiration of benefits, while the hazard rate of re-employment rises by only 20%. The difference between the two measures arises because many individuals leave the unemployment register immediately after their benefits expire without returning to work. The modest spike in re-employment rates implies that most job seekers do not wait until their UI benefits are exhausted to return to work: fewer than 1% of jobless spells have an ending date that is manipulated to coincide with the expiration of UI benefits.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/f123b7ee854f8154e5fbc723e4ae74ad154b3fe0

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Citations in the corpus

Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market (2013, unknown): “We 1 Relevant prior research includes Chetty (2008) and Card, Chetty, and Weber (2007). use microdata at the individual level from the monthly survey of households and individuals that is used to construct official unemployment and labor force statistics in the United States (the Current Population…”
A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise? (2012, background): “…the measured unemployment rate may be artifi cially infl ated because some individuals who are not actively searching for work are identifying themselves as active searchers in order to receive unemployment insurance benefi ts (a “reporting effect,” in the language of Card, Chetty, and Weber 2007).”
Local labor markets and criminal recidivism (2017, methodology): “16This specification has been used widely in the literature on unemployment duration (Meyer 1990, Card et al. 2007) and welfare exits and reentry (see Hoynes 2000).”
Active Labor Market Policy Evaluations: A Meta-Analysis (2010, unknown): “…discrepancies between results based on registered unemployment and employment have been noted before in studies of behavior around the point of unemployment benefit exhaustion (see Card, Chetty, and Weber, 2007).23 Column 2 of tables 7 and 8 present models that only distinguish the type of program.”
Consumer Spending during Unemployment: Positive and Normative Implications (2019, background): “For example, Card et al. (2007) estimate a 17 percent increase at 30 weeks and 25 percent increase at 20 weeks in Austria; DellaVigna et al. (2017) estimate a 36 percent increase at 270 days in Hungary; and Schmieder and von Wachter’s (2016) figures imply a 46 percent increase at 18 months and 61 pe”
Labor Market Effects of Unemployment Insurance Design (2014, unknown): “17 We start by considering the partial equilibrium model under the assumptions that all unemployed workers receive the same amount of unemployment beneﬁts which are paid for the entire duration of unemployment.”
The individual experience of unemployment. (2012, background): “However, these findings may be overstated because many studies do not account for individuals who simply stop receiving benefits (e.g., drop out of the system) rather than actually finding jobs (Card et al. 2007).”
Benefit Duration, Unemployment Duration and Job Match Quality: A Regression-Discontinuity Approach (2009, unknown): “Card, Chetty, and Weber (2007b) apply a regression discontinuity design and find for Austria that an increase in benefit entitlement length reduces job-finding rates but does not have any effect on subsequent job match quality, measured in wage growth and job duration.”
Minimum-Income Benefits in OECD Countries: Policy Design, Effectiveness and Challenges (2010, result): “However, more recently, a few authors have questioned whether this phenomenon is as economically significant as the earlier studies appear to indicate (Card et al., 2007; Boon and van Ours, 2009).”
Does Extending Unemployment Benefits Improve Job Quality? (2017, methodology): “Second, Austria offers an institutional setting where both the base and the extended UI durations are similar to those in the U.S. Consistent with prior research, we estimate that a nine-week increase in potential benefit duration causes workers to stay jobless two days longer.”
Reference-Dependent Job Search: Evidence from Hungary (2017, unknown): “We sketch a simple model which highlights three robust predictions of the referencedependent job search model which are not shared by the standard model, even with unobserved heterogeneity.”
Private and Public Provision of Counseling to Job-Seekers: Evidence from a Large Controlled Experiment (2014, background): “However, as is well known and well illustrated by Card et al. (2007), the end of a registered spell may be due to quite different events.”
Parental leave regulations, mothers’ labor force attachment and fathers’ childcare involvement: evidence from a natural experiment (2013, result): “This diametrical effect can be referred to as a "benefit expiry effect" and has been observed both in studies of labor market behavior (Card et al. 2007) and maternity leave policies (Schönberg and Ludsteck 2008).”
The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation (2016, background): “…exhaustion rate, are indeed key components in the welfare evaluation of UI benefit extensions neither captures the employment effects of UI parameters, since the majority of workers do not return to work immediately after benefit exhaustion (e.g., Card et al. (2007b) and Schmieder et al. (2012a)).”