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Extended unemployment benefits and early retirement: program complementarity and program substitution


Inderbitzin, Lukas; Staubli, Stefan; Zweimüller, Josef (2016). Extended unemployment benefits and early retirement: program complementarity and program substitution. American Economic Journal: Economic Policy, 8(1):253-288.

Abstract

We explore how extended unemployment insurance (UI) benefits for older workers affect early retirement and welfare. We argue that extending UI benefits generates program complementarity (more labor market exits and disability benefit take-up in the future) and program substitution (less disability benefit take-up in the present). Exploiting a policy change in Austria, which extended UI benefits to 4 years, we find program complementarity effects for workers aged 50+ and program substitution effects for workers aged 55+. We apply the Baily-Chetty formula for optimal UI to account for complementarity and substitution, showing that UI benefits for older workers were too generous.

Abstract

We explore how extended unemployment insurance (UI) benefits for older workers affect early retirement and welfare. We argue that extending UI benefits generates program complementarity (more labor market exits and disability benefit take-up in the future) and program substitution (less disability benefit take-up in the present). Exploiting a policy change in Austria, which extended UI benefits to 4 years, we find program complementarity effects for workers aged 50+ and program substitution effects for workers aged 55+. We apply the Baily-Chetty formula for optimal UI to account for complementarity and substitution, showing that UI benefits for older workers were too generous.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Economics of the elderly, economics of the handicapped, non-labor market discrimination, time allocation and labor supply, retirement, retirement policies, unemployment, Keywords: Early retirement, unemployment, disability, policy reform, optimal benefits, insurance, severance pay, plant closings
Language:English
Date:February 2016
Deposited On:24 Feb 2016 14:01
Last Modified:25 May 2016 07:09
Publisher:American Economic Association
ISSN:1945-774X
Publisher DOI:https://doi.org/10.1257/pol.20130315

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