Spell durations with long unemployment insurance periods

This paper uses data from a natural experiment to investigate the potential incentive effect of a fixed unemployment insurance period. We compare two large groups of Norwegian unemployed persons who registered as unemployed in 1990 and 1991. The last group was affected by a rule change that in practice extended the length of unemployment benefits to more than 3 years. Our data are taken from official records, and we construct unemployment durations by combining information from the unemployment registers with employers' records. We use a proportional hazard model with a flexible baseline. The results suggest that the main effect of benefits running out is to make people drop out of the unemployment register. We find neither clear evidence that the hazard into employment increased when the end of benefits approached in the pre-liberalisation group, nor that behaviour in this part of the spells changed after the reform. On the other hand, our results suggest that the reform had an all over negative effect on the employment hazard. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: J64: C41.