Skip to main content
Log in

Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: A Three Country Comparison

  • Symposium Article
  • Published:
Comparative Economic Studies Aims and scope Submit manuscript

Abstract

We examine how unemployment schemes and liquidity constraints affect re-employment probabilities trying to assess whether these schemes, through employment services and search requirements, can offset the perverse effect of benefits on unemployment duration. Similarly, given that liquidity constraints and financial pressure also affect reservation wage and search effort, we analyze whether better economic conditions of individuals increase duration. We perform a survival analysis on Finland, Italy and Poland and we find that unemployment insurance schemes have a mixed effect: initially they give incentives to increase search effort but with time they simply reduce liquidity constraints and thus increase duration. We also find that individuals’ liquidity constraints reduce unemployment duration in Italy and Poland but not Finland, suggesting that this aspect is less important in countries with a more developed welfare system.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3
Figure 4

Similar content being viewed by others

Notes

  1. There is a large number of studies on the effect of UI schemes, though these analyses are seldom carried out from a comparative perspective. A good review is contained in Atkinson and Micklewright (1991) More recent studies focus on the role of eligibility criteria on the search effort and unemployment duration and their conclusions are mixed. Klepinger et al. (2002) use data from Maryland and show that stricter criteria improve search efforts and reduce unemployment duration. Ashenfelter et al. (2005), using data from different American states, conclude that stricter search criteria do not affect the access to benefits. Manning (2009) uses difference in differences estimations using data for the United Kingdom in 1996 and shows that criteria affect the access to claims but stricter criteria discourage workers from meeting the search requirement and thus do not facilitate the transition to an employment. As for the relationship between benefits maximum duration and unemployment length, Nickell and Layard (1999) suggest that these two aspects are positively correlated.

  2. The equivalence scale takes into account the age component. A full description of the scale can be found in Eurostat (2007).

  3. The exact form of the question in the EU-SILC questionnaire was: ‘Concerning your household's total monthly or weekly income, with which degree of ease or difficulty is the household able to make ends meet?’

  4. The extreme scarcity of mortgages in Poland is not a peculiarity of unemployed individuals: a similar frequency is also found in the population as a whole.

  5. We also performed the test for proportionality assumption proposed by Grambsch and Therneau (1994) on the residuals from an estimation of the Cox hazard model. The test rejected the assumption of proportionality related to (and only to) the unemployment benefits.

  6. In particular, we use age and age squared to take into accounts the non-linear effect of ageing. Education enters the regression as a dummy, which is one if individuals have at least upper secondary education (ISEC Degree 3 or higher) and zero otherwise. The region of origin is expressed as a dummy, which is one if individuals come from a region whose GDP is <75% of the country average. Different measures for education and place of origin were also tried, but these two were the most significant.

  7. Since our sample consists of newly unemployed, the months spent in unemployment in 2006 necessarily belongs to another spell of unemployment and thus are not already included in the actual unemployment duration.

  8. In particular, in Poland, we observe that the share of individuals that found a job where: 19.9% if declaring to make ends meet ‘with great difficulty’, 22% if declaring ‘with difficulty’, 29.6% if declaring ‘with some difficulty’, 27.8 if declaring ‘fairly easily’, and 14.28 if declaring ‘easily’ or ‘very easily’.

  9. In fact, declining hazard functions might capture the desired effect of passing of time but also the permanence in unemployment of individuals whose unobserved characteristics self-select them into remaining unemployed.

References

  • Ashenfelter, O, Ashmore, D and Deschenes, O . 2005: Do unemployment insurance recipients actively seek work? Evidence from randomized trials in four US States. Journal of Econometrics 125 (1–2): 53–75.

    Article  Google Scholar 

  • Atkinson, A and Micklewright, J . 1991: Unemployment compensation and labor market transitions: A critical review. Journal of Economic Literature 29 (4): 1679–1727.

    Google Scholar 

  • Bloemen, H . 2002: The relation between wealth and labour market transitions: An empirical study for the Netherlands. Journal of Applied Econometrics 17 (3): 249–268.

    Article  Google Scholar 

  • Card, D, Chetty, R and Weber, A . 2007: Cash-on-hand and competing models of intertemporal behavior: New evidence from the labor market. The Quarterly Journal of Economics 122 (4): 1511–1560.

    Article  Google Scholar 

  • Chetty, R . 2005: Why do unemployment benefits raise unemployment durations? Moral Hazard vs. Liquidity. NBER Working Papers 11760.

  • Chetty, R . 2008: Moral hazard vs. liquidity and optimal unemployment insurance. Journal of Political Economy 116 (2): 173–234.

    Article  Google Scholar 

  • Eurostat. 2007: Description of SILC user database variables: Cross-sectional and longitudinal. Version 2007.1 from 01-03-09. Eurostat, Unit F-3: Luxembourg.

  • Grambsch, P and Therneau, T . 1994: Proportional hazards tests and diagnostics based on weighted residuals. Biometrika 81 (3): 515–526.

    Article  Google Scholar 

  • Klepinger, DH, Johnson, TR and Joesch, JM . 2002: Effects of unemployment insurance work-search requirements: The Maryland experiment. Industrial and Labor Relations Review 56 (1): 3–22.

    Article  Google Scholar 

  • Manning, A . 2009: You can’t always get what you want: The impact of the UK jobseeker's allowance. Labour Economics 16 (3): 239–250.

    Article  Google Scholar 

  • Nickell, S and Layard, R . 1999: Labor market institutions and economic performance. In: Ashenfelter, O and Card, D (eds). Handbook of Labor Economics. Elsevier: Amsterdam. Vol 3: 3029–3084.

    Google Scholar 

  • OECD. 2007: OECD employment outlook 2007. OECD Publishing: Paris.

  • OECD. 2009: OECD employment outlook 2009. OECD Publishing: Paris.

Download references

Acknowledgements

The author would like to thank for their useful comments the participants of the International Workshop ‘Crises, Institutions and Labour Market Performance: Comparing Evidence and Policies’ held in Perugia, Italy in November 2011. Suggestions from Giuseppe Croce were particularly useful. The analysis is based on data obtained from European Commission, Eurostat, longitudinal EU-SILC/2011/08. Eurostat has no responsibility for the results and conclusions, which are those of the researcher. The usual disclaimer applies.

Author information

Authors and Affiliations

Authors

Rights and permissions

Reprints and permissions

About this article

Cite this article

Corsini, L. Unemployment Insurance Schemes, Liquidity Constraints and Re-employment: A Three Country Comparison. Comp Econ Stud 54, 321–340 (2012). https://doi.org/10.1057/ces.2012.9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/ces.2012.9

Keywords

JEL Classifications

Navigation