Extending the Entitlement to Unemployment Benefits is a Mistaken Approach
ResearchThe duration of entitlement to unemployment benefits for employees who have worked a long time within the same company should not be extended.
Empirical studies by the Centre for European Economic Research (ZEW), Mannheim, on the extension of unemployment benefits to a period of 32 months in the 1980s show that such an extension of unemployment pay will only facilitate the early retirement of older workers who spent a long time with one employer. There are grounds for concern that this expensive policy will increase unemployment among the elderly in particular.
Extending the entitlement to unemployment benefits for those who have worked a long time within the same company also impacts the distribution system. Implications for employers above the age of 45, who are too young to benefit from several early retirement channels: Extending unemployment pay tends to benefit those with higher incomes since the are entitled to a large amount of unemployment benefits. People who earn less usually do not profit from the extension of unemployment benefits - the extra money from unemployment pay is normally deducted from their social benefits resulting in an unchanged disposable income.
The results of the ZEW studies thus suggest to continue on the path towards cutting the maximum entitlement to unemployment benefits. It should not exceed twelve months - no matter the time spent with one company.
Download the ZEW studies
ZEW Discussion Paper No. 04-63
ZEW Discussion Paper No. 05-29
Contact
Dr. Ralf Wilke, Phone: +49(0)621/1235-131, E-mail: wilke@zew.de
Dr. Alexander Spermann, E-mail: spermann@zew.de