Unemployment benefits and older workers Jan C. van Ours

1. Unemployment benefits and older workers Jan C. van Ours Tilburg University & University of Melbourne

2. Setting the stage • International comparison of (un)employment rates by age and gender • Developments over time for the Netherlands • UI benefits for older workers • Changes in entitlement & eligibility • Unemployment effects: inflow and outflow

3. Employment rates 2009

4. Unemployment rates 2009

5. Employment rates 55-64 years

6. Older workers in the Netherlands • Unemployment rates workers aged 55-64 comparable to prime age workers • Employment rates older workers substantially lower but increasing over the past decade

7. Should we worry? • Unemployment rates older workers low • But: • Low job separation rates • Low job finding rates • Long-term unemployment • UI benefits as retirement pathway • Unemployment could be lower • Role of unemployment benefits • Eligibility criteria • Entitlement

8. Labor market older workers • Improvement of employment rates: • Change in pension system from early retirement “pay as you go” to early retirement actuarially fair • Incentives for unemployed workers • Focus of this presentation • Quantitatively maybe not so important • Showing older workers are influenced by incentives

9. Unemployment benefits Two major changes in UI benefits in the Netherlands: • Change in entitlement: reduction of Potential Benefit Duration – not age specific • Change in eligibility: introducing search obligations – age specific

10. Entitlement rules - old • Several types of benefits: • Short term: 6 months • Wage dependent: up to 3.5 years • Extended: 2 – 3.5 years • Unemployed after 57.5 years • Receive UI benefits for 7.5 years – up to old age pensions • Spike in the inflow into unemployment beyond age 57.5

11. Entitlement rules - new • August 11, 2003 (weekend): extended benefits were abolished • Incentive to become unemployed shortly after age 57.5 disappeared • Spike after age 57.5 disappears

12. Eligibility criteria - old • Worked 26 out of 39 weeks prior to unemployment • Received wage at least 52 days in the 4 calendar years during the 5 years prior to unemployment • Register at the employment office • Have to accept a ‘suitable job’ • Actively search for work – but only up to the age of 57.5 • Drop in job finding rate after age 57.5

13. Eligibility criteria – new • Search requirement after age 57.5 was reinstalled • Drop in job finding rate at age 575. disappears

14. “Natural experiment” • Before – after comparison • Below – above age 57.5 • Before – below 57.5: cycle before • Before – above 57.5: cycle before + age • After – below 57.5: cycle after • After – above 57.5: cycle after + policy + age • (2-1) = age effect • (4-3) = age effect + policy effect • (4-3) – (2-1) = policy effect

15. Graphical analysis • Age at inflow has important effects on entitlement and eligibility rules • Policy change affect the incentives • After age 57.5: • Inflow does not go up • Outflow goes up

16. Inflow by age 2005

17. Inflow by age 2001-02

18. Annual inflow

19. 3 months prob to find job - 2004

20. 3 months prob to find job - 2002

21. 3 months prob to find job

22. Graphical analysis - again • Age at inflow has important effects on entitlement and eligibility rules • Policy change affect the incentives • After age 57.5: • Inflow does not go up • Outflow goes up

23. Conclusions • Labor market position of older employed workers is not bad • Probability to loose their job is small • Once unemployed probability to find a job is small too. • Low unemployment rates: small inflow rate * long durations

24. Even for older workers incentives seem to work • It is possible to reduce inflow into unemployment and increase outflow from unemployment