The effects of unemployment benefit duration: Evidence from residual benefit duration

Abstract

We examine the effects of unemployment benefit duration in Finland. Although the maximum duration is the same for all unemployed, potential benefit duration at the beginning of unemployment spells varies, because only claimants with sufficient work history qualify for a new benefit period, whereas others may be entitled to residual benefits from the previous spell. Part of this variation is exogenous due to a reform that reduced the minimum number of employment weeks required for a new benefit period. Using a fuzzy difference-in-differences approach we estimate that one extra week of benefits increases expected unemployment duration by 0.16 weeks. A longer benefit period also increases the expected wage and duration of the next job. The relative importance of the match-quality effect is economically significant when the fiscal impacts of benefit duration changes are considered.