DP1840 Unemployment Duration, Benefit Duration and the Business Cycle

Author(s): Manuel Arellano , Samuel Bentolila , Olympia Bover

Publication Date: March 1998

Keyword(s): Business Cycle , Unemployment Benefits , Unemployment Duration

JEL(s): E32 , J64 , J65

Programme Areas: Human Resources

Link to this Page: www.cepr.org/pubs/dps/DP1840.asp

In this paper, we study the effects of unemployment benefit duration and the business cycle on unemployment duration. We construct durations for individuals entering unemployment from a longitudinal sample of Spanish men in 1987–94. Estimated discrete hazard models indicate that receipt of unemployment benefits significantly reduces the hazard of leaving unemployment. For instance, at durations of three months, the hazard for workers without benefits is twice as large as that for workers with benefits. Favourable business conditions increase the hazard of leaving unemployment. At sample-period magnitudes, this effect is significantly smaller than that of benefit receipt.