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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Extended unemployment benefits and early retirement: program complementarity and program substitution
Organization Unit
  • Lukas Inderbitzin
  • Stefan Staubli
  • Josef Zweimüller
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 119
ISSN 1664-7041
Number of Pages 46
Date 2013
Abstract Text 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.
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Keywords Early retirement, unemployment, disability, policy reform, optimal benefits, Austria, Arbeitslosenversicherung, flexible Altersgrenze, Vorruhestandsregelung, Vorruhestand, Österreich