Unemployment Duration and the Interactions Between Unemployment Insurance and Social Assistance

The existing studies of unemployment benefit and unemployment duration suggest that reforms
that lower either the level or the duration of benefits should reduce unemployment. Despite the
large number of such reforms implemented in Europe in the past decades, this paper presents
evidence that shows no correlation between the reforms and the evolution of unemployment.
This paper also provides an explanation for this fact by exploring the
interactions between unemployment benefits and social assistance programmes. Unemployed
workers who are also eligible, or expect to become eligible, for some social assistance
programmes are less concerned about their benefits being reduced or terminated. They will not
search particularly intensively around the time of benefit exhaustion nor will come particularly
less choosy about job offers by reducing their reservation wages. Data from the European
Community Household Panel (ECHP) are used to provide evidence to support this argument.
Results show that, in fact, for social assistance recipients the probability of finding a job is not
particularly higher during the last months of entitlement.