CLS Working Papers, Centre for Labour Market and Social Research, Aarhus School of Business, University of Aarhus
Peder J. Pedersen
Unemployment Traps: Do Financial Dis-incentives matter?
() and Nina Smith
Abstract: This paper analyses the importance of financial
dis-incentives for workers in Denmark. Based on a panel survey which is
merged to a number of administrative registers it is possible to calculate
precise measures of the economic incentives for labour force participants
between employment in a full time job and being on unemployment insurance
benefits and considering also the fixed costs of work. The results indicate
large dis-incentives effects for groups, especially low paid women. In
1996, 6 per cent of Danish men and 13 per cent of the women had a lower
disposable net income if working a full-time job compared to being on
unemployment benefits. The effect of these financial dis-incentives is
analysed in simple reduced form models of on-the-job search, unemployment
search behaviour, unemployment risk, and transition out of the labour
force. We find that the net compensation rate in unemployment has a
significant impact on women's propensity to leave the labour force, on
measures of search intensity, on the risk of being hit by unemployment and
on one of our flexibility measures, i.e. the maximum acceptable commuting
time to a job. The net compensation rate has no impact on the willingness
to move to another place to get a job. However, here we find a significant
impact from job attitude related measures. We end the paper reporting the
results from including attitude variables along with economic variables. We
find a number of significant effects from attitude variables. However, the
main conclusion is that economic incentives dominate the present analysis
of unemployment traps.
Keywords: Unemployment traps; Incentives; Job attitudes; (follow links to similar papers)
JEL-Codes: I38; J32; J64; (follow links to similar papers)
29 pages, June 27, 2002
Published in: Peder J. Pedersen & Nina Smith. Unemployment Traps: Do Financial Dis-incentives matter?. European Sociological Review. 2002: 271-288.
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