Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 1999:20: Do Benefit Cuts Boost Job Findings? Swedish Evidence from the 1990s

Kenneth Carling (), Bertil Holmlund () and Altin Vejsiu
Additional contact information
Kenneth Carling: Office of Labor Market Policy Evaluation (IFAU), Postal: P.O. Box 513, SE-751 20 Uppsala, Sweden
Bertil Holmlund: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Altin Vejsiu: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden,

Abstract: In June 1995, the Swedish parliament decided to cut the replacement rate in unemployment insurance from 80 percent to 75 percent, a change that took effect on January 1, 1996. This paper examines how this change affected job finding rates among unemployed insured individuals. To identify the effect of the policy we exploit a quasi-experimental feature of the benefit cut: only a fraction of the unemployed was affected by the reduction in replacement rates. We compare the evolution of job finding rates before and after the reform among those affected and those not affected. Our estimates suggest that the reform caused an increase in the transition rate of roughly 10 percent. There is also evidence of anticipatory behavior among the unemployed; the effects of the reform seem to operate several months before its actual implementation in January 1996.

Keywords: Unemployment duration; unemployment benefits

JEL-codes: J64; J65

34 pages, November 1, 1999

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