Oktober 2016

IZA DP No. 10262: Working to Get Fired? Regression Discontinuity Effects of Unemployment Benefit Eligibility on Prior Employment Duration

In most countries, the unemployed are entitled to unemployment benefits only if they have previously worked a minimum period of time. This institutional feature creates a sharp change at eligibility in the disutility from unemployment and may distort the duration of jobs. In this paper, we evaluate this eligibility effect using a regression discontinuity approach. Our evidence is based on longitudinal social security data from Portugal, where the unemployed are required to work a relatively long period to collect benefits. We find that monthly transitions from employment to unemployment increase by 10% as soon as the eligibility condition is met. This result is driven entirely by transitions to subsidised unemployment, which increase by 20%, as non-subsidised unemployment is not affected. The effects are even larger for the unemployed with high replacement ratios or those who meet the eligibility condition from multiple short employment spells.