Nationaløkonomisk tidsskrift,
Nationaløkonomisk Forening

Abstract: The potential unemployment benefit duration in Denmark was shortened from four to two years in 2010. This paper estimates the employment effects of the reform by comparing unemployment spells before and after the reform. The analysis proceeds in two steps. First, a duration model is estimated to control for observable characteristics of the unemployed and variation in employment opportunities. In the second step, the employment effect at the aggregate level is assessed by converting the estimated differences in hazard rates into a difference in the structural employment level. For this purpose, a simple equilibrium model of the labour market is applied. The paper finds a significantly higher exit to employment after 40 weeks in unemployment. At the individual level, the estimated effect corresponds to a reduction in the expected unemployment duration of 3-5 weeks. At the aggregate level, and with considerable uncertainty, the effect transforms into an increase in the structural employment level of 9.600-16.800 persons depending on the applied comparison group before the reform. This corresponds to an increase in the employment rate of up to ½ percentage point.

Keywords: Unemployment insurance; maximum benefit duration

JEL-codes: J64; J65

Language: Danish

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