Monday, March 21, 2011

The impact of job search monitoring

Unemployment insurance is thought to be ripe with abuse, especially as job seekers do not appear to seek jobs that much. For example, time use surveys have established that they spend very little time on job search, the median being even zero minutes on any given day (see previous post on this). So it seems natural that you want to make sure the job seekers give sufficient effort to obtain benefits. But how effective is such monitoring?

Bart Cockx and Muriel Dejemeppe study this imposition of stronger monitoring on long term unemployed workers in 2004 in Belgium. For all practical purposes, there is no limit to the duration of unemployment insurance benefits there, so it seems baffling that only recently has there been some serious monitoring, and this only happens after eight months of unemployment. And then, it is only in the form of a stern letter threatening monitoring. Before this, monitoring was only targeted on those unemployed for more than 21 months...

This means that before 2004, the unemployed had essentially free rein. After that, there is a supposedly credible threat of monitoring after eight months. In Wallonia, the letter is followed up two months later with a counseling session. In Flanders, there is no systematic counseling That is probably what can be considered a clean natural experiment of a transition from no monitoring to some monitoring. What impact did it have? In Flanders, the transition to employment after eight months of unemployment increased by 28%. In Wallonia, this is 22%, the authors conjecture it is lower despite the more credible threat due to worse labor market conditions. But especially in Flanders, it appears the shorter duration implies that workers end up with worse jobs than before, both in terms of wage and duration of employment. And Walloon females are more likely to transition into sickness insurance, which has the same benefits as unemployment insurance.

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