NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Causal Effect of Unemployment Duration on Wages: Evidence from Unemployment Insurance Extensions

Johannes F. Schmieder, Till M. von Wachter, Stefan Bender

NBER Working Paper No. 19772
Issued in December 2013
NBER Program(s):   LS   PE

This paper provides estimates of the causal effect of unemployment duration on wages. The paper shows that if the path of reemployment wages throughout the unemployment spell does not shift in response to unemployment insurance (UI) extensions this implies reservation wages do not bind. Under this condition, UI extensions can be used as an instrumental variable (IV) to obtain the average causal effect of unemployment duration among all individuals whose unemployment duration responds to the policy change. UI extensions occurring with exact age in Germany had small but precisely estimated effects on wages, without affecting the path of reemployment wages. The resulting IV estimates yield substantial negative effects of unemployment duration on wages of 0.8% per month. This estimate implies that declines in wage offers over the unemployment spell can explain about a third of average wage declines at unemployment, and that wage reductions can substantially raise the costs of long-term unemployment.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

An online appendix is available for this publication.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19772

Users who downloaded this paper also downloaded these:
Angrist w19774 The Perils of Peer Effects
Farber and Valletta w19048 Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market
Mueller, Rothstein, and von Wachter w19672 Unemployment Insurance and Disability Insurance in the Great Recession
Mulligan and Gallen w19771 Wedges, Wages, and Productivity under the Affordable Care Act
Baum and Ruhm w19741 The Effects of Paid Family Leave in California on Labor Market Outcomes
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us