DOES AN INCREASE IN UNEMPLOYMENT INCOME
LEAD TO LONGER UNEMPLOYMENT SPELLS?
EVIDENCE USING DANISH UNEMPLOYMENT ASSISTANCE DATA*
Ott-Siim Toomet **
August 2005
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Danish unemployment assistance depends on age; it increases by
70% when unemployed individuals turn 25. This feature is used to identify
the impact of income on the unemployment-to-employment hazard
rate. A mixed proportional hazard framework based on a 10% representative
Danish registry data set is used. The results indicate that the
income effect for females is negative and significant, corresponding to
an income elasticity of -0.4. The effect for males is positive but insignificant.
JEL Code: J64, J65
Key words: welfare benefits, incentive effect, unemployment duration
* The author of this article was granted Eesti Pank´s research award for 2005. The author
is grateful to Knut Røed for his comments and suggestions.
** Address: Department of Economics, Tartu University, Narva 4-A210, Tartu 51009, Estonia.
Author's e-mail address: otoomet@ut.ee
The views expressed are those of the author and do not necessarily represent the official views of Eesti Pank.
Contents
- 1. Introduction
- 2. Short Overview of Danish Unemployment Income Legislation
- 3. Empirical Framework
- 3.1. Hazard Rate Framework
- 3.2. Income Effect
- 4. Data
- 4.1. Variables and Some Summary Statistics
- 4.2. Relationship Between UA and Age
- 4.3. Relationship Between the Hazard Rate and Age
- 5. Some Simulations and a Monte-Carlo Sensitivity Analysis
- 5.1. Anticipation Effect
- 5.2. Monte-Carlo Sensitivity Analysis
- 6. Results
- 6.1. Age Effect
- 6.1.1. Specification With Discontinuity
- 6.1.2. Specification Without Discontinuity
- 6.1.3. Parametric Differences in Differences Estimate
- 6.2. Other Effects
- 7. Discussion
- 8. Conclusions
- References
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