Università Cattolica del Sacro Cuore

N. 48 - "Unemployment Insurance and the Duration of Employment: Theory and Evidence from a Regression Kink Design" - Diogo G. C. Britto


Can unemployment insurance (UI) affect the behavior of employed workers and the duration of their employment spells? I apply a regression kink design to address this question using data from the Brazilian labor market. Exploiting the UI schedule, I find that a 1% higher potential benefit level increases job duration by around 0.35%.
This result is driven by the fact that a higher potential benefit level reduces the probability of job quits, which are not covered by UI. I develop a simple model showing that the positive effect on employment duration implies that the optimal benefit is higher than otherwise and delivers a simple welfare formula based on suffcient statistics. A simple calibration exercise shows that this elasticity affects welfare with a similar magnitude as the well-known elasticity of unemployment duration to the benefit level.

Keywords: Unemployment Insurance, Employment Duration, Regression Kink Design, Sufficient Statistics Welfare Analysis.
JEL codes: I38, J65.