Unemployment insurance and job turnover in Spain
Yolanda F. Rebollo-Sanz (2012)
Unemployment insurance and job turnover in Spain
Labour Economics, Vol 19, Issue 3, pp. 403-426
Research Highlights
The study reported in this paper shows that the current design of the UIS might provide incentives
for workers and employers to increase labour market turnover. In particular, it reveals that at the
point where the employee qualifies for unemployment benefits there is a spike in the layoff hazard
rate, but none in the quit hazard rate. Hence, the UIS appears to have a negative effect on
employment duration while increasing unemployment incidence. We also find a strong impact of
the UIS on unemployment duration. The recall and new job hazard rates increase notably around the
time of benefit exhaustion. Interestingly, the incidence of the UIS on employment and
unemployment transitions is the largest for women and temporary workers, that is, for workers with
loose attachment to the labour market and who suffer the largest turnover rates in Spain. Another
interesting difference that emerged in the analysis is that the spike in the recall hazard rate for
permanent workers takes place just one month before the exhaustion of unemployment benefits.
Hence, the results found show that workers and firms seem to have some influence on the timing of
the outflow from both employment and unemployment and use it to their advantage whenever the
current characteristics of the UIS allow. However, these incentives might generate excessive labour
market turnover, with shorter employment spells and longer unemployment spells. Notice that the
importance of these results rests on the fact that the UIS seems to reduce the time spent in
employment throughout an individual’s working life both directly increasing the probability of exit
from employment and indirectly increasing unemployment duration. These findings need to be
considered in the Spanish economy, in which over 80% of newly-signed contracts are temporary
and more than 30% of unemployed workers return to their previous firm.
Given these results, a potential reform of the UIS addressed to reduce the average unemployment
duration and the unemployment rate should consider both sides of the labour market. In one side,
the current design of the UIS distorts firm’s hiring and firing decisions. On the other side, it also has
behavioural consequences on the worker’s decisions.
El texto completo del artículo puede encontrarse aquí:
http://www.sciencedirect.com/science/article/pii/S092753711200019X