Arbeitspapier

Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution

This paper explores how extended unemployment insurance (UI) benefits targeted to older workers affect early retirement and social welfare. The trade-off of optimal UI between consumption smoothing and moral hazard requires accounting for the entire early retirement system, which often includes extended UI and relaxed access to disability insurance (DI). We argue that extended UI generates program complementarity (increased take-up of UI followed by DI and/or regular retirement benefits) and program substitution (increased take-up of UI instead of DI). Exploiting Austria’s regional extended benefit program, which extended regular UI benefits to up to 4 years, we find: (i) program complementarity is quantitatively important for workers aged 50+; and (ii) program substitution is quantitatively relevant for workers aged 55+. We derive a simple rule for optimal UI that accounts for program complementarity and program substitution. Using the sufficient statistics approach, we conclude that UI for older workers was too generous and the regional extended benefit program was a suboptimal policy.

Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 1306

Classification
Wirtschaft
Economics of the Elderly; Economics of the Handicapped; Non-labor Market Discrimination
Retirement; Retirement Policies
Unemployment Insurance; Severance Pay; Plant Closings
Subject
Early retirement
unemployment
disability
policy reform
optimal benefits

Event
Geistige Schöpfung
(who)
Inderbitzin, Lukas
Staubli, Stefan
Zweimüller, Josef
Event
Veröffentlichung
(who)
Johannes Kepler University of Linz, Department of Economics
(where)
Linz
(when)
2013

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Inderbitzin, Lukas
  • Staubli, Stefan
  • Zweimüller, Josef
  • Johannes Kepler University of Linz, Department of Economics

Time of origin

  • 2013

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