Unemployment benefits and older workersJan C. van Ours

Tilburg University & University of Melbourne

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

Employment rates 200925 to 54 years 55 to 64 years

Men Women Men Women

Netherlands 90.7 79.6 61.7 43.6

UK 85.4 74.4 66.1 49.3

Germany 86.1 75.4 63.8 48.6

France 87.8 76.8 41.4 36.7

United States 81.5 70.2 65.2 56.4

OECD 84.7 65.3 64.4 45.1

Unemployment rates 200925 to 54 years 55 to 64 years

Men Women Men Women

Netherlands 3.0 3.3 4.0 3.6

UK 6.8 5.2 6.0 2.8

Germany 7.6 6.9 8.0 8.0

France 7.2 8.2 6.5 6.0

United States 9.2 7.6 7.2 6.0

OECD 7.6 6.9 6.2 5.4

Employment rates 55-64 years

1994 2006 2009

Men 40.7 55.4 61.7

Women 17.5 35.6 43.6

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

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

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

Unemployment benefits

Two major changes in UI benefits in the Netherlands:

1. Change in entitlement: reduction of Potential Benefit Duration – not age specific

2. Change in eligibility: introducing search obligations – age specific

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

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

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

Eligibility criteria – new

• Search requirement after age 57.5 was reinstalled

• Drop in job finding rate at age 575. disappears

“Natural experiment”• Before – after comparison• Below – above age 57.5 1. Before – below 57.5: cycle before2. Before – above 57.5: cycle before + age 3. After – below 57.5: cycle after4. After – above 57.5: cycle after + policy +

age• (2-1) = age effect• (4-3) = age effect + policy effect• (4-3) – (2-1) = policy effect

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

Inflow by age 2005

0

50

100

150

200

250

56.5 57 57.5 58 58.5

Age at inflow

Inflow

into

unem

ploym

ent

Inflow by age 2001-02

0

50

100

150

200

250

56.5 57 57.5 58 58.5

Age at inflow

Inflow

into

unem

ploym

ent

Annual inflow

2001-02 2005 Diff.

56.6-57.5 1571 2257 +686

57.6-58.5 2189 2488 +299

Diff. 618 231 +387

Diff. (%) +40 +10 -30

3 months prob to find job - 2004

0

2

4

6

8

10

12

55.5 56.0 56.5 57.0 57.5 58.0 58.5 59.0 59.5

Age at inflow

Probab

ility

3 months prob to find job - 2002

0

2

4

6

8

10

12

55.5 56.0 56.5 57.0 57.5 58.0 58.5 59.0 59.5

Age at inflow

Probab

ility

3 months prob to find job

2001-02 2005 Diff.

55.6-57.5 8.1 8.3 +0.2

57.6-59.5 4.8 6.5 +1.7

Diff. -3.3 -1.8 +1.5

Diff. (%) -40 -20 +20

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

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

• Even for older workers incentives seem to work

• It is possible to reduce inflow into unemployment and increase outflow from unemployment