January 2013

IZA DP No. 7193: Unemployment and Subsequent Employment Stability: Does Labour Market Policy Matter?

This paper analyses the effect of unemployment insurance generosity and active labour market policy on reemployment stability in Europe. Using EU-SILC and OECD data, we conduct discrete time survival analyses with shared frailty specification to identify policy effects at the micro and macro level. Empirical evidence suggests that unemployment benefit receipt is associated with longer reemployment duration at the individual level. Furthermore, countries with more generous unemployment insurance and higher ALMP spending show a more sustainable reintegration record of previously unemployed workers. These results point to a policy trade-off between the well-confirmed disincentive and locking-in effect of unemployment benefits and ALMP programmes on the one hand, and their positive effect on reemployment stability on the other hand.