published in: Economics Letters, 2004, 85 (2), 229-234
This paper examines the effects of unemployment insurance on escape rates from
unemployment using data from the 1998 Displaced Worker Survey. Transitions from
unemployment to employment are modeled using a flexible representation of the baseline
hazard function and allowing for discrete changes through time in the effects of
unemployment insurance benefits, as well as those of the other covariates. The impact of
unemployment insurance is also modeled using a time-varying benefits measure, namely,
time to exhaustion of benefits. Potential biases stemming from reverse causation and
unobserved individual heterogeneity are accommodated. Both approaches render
transparent the major disincentive effects of access to benefits on re-employment rates while
also providing evidence of time-varying effects of other regressors.
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