The Effects of Unemployment Insurance Duration on Job Quality: Evidence from Post-Hartz Germany

Abstract

This paper examines the effect of changes in the duration of unemployment insurance on various measures of post-unemployment job quality within the context of Germany after the Hartz reforms. I find a significant positive effect of UI duration on re-employment wage, as well as significant effects for certain demographic groups indicating increased occupational prestige, job satisfaction, and satisfaction with hours of work. I find no significant effect on distance from home to work. I find that the positive relationship between UI eligibility and unemployment duration is based solely on the unemployment durations of those who exit the labor force after unemployment; I find no evidence of a link between UI eligibility and unemployment duration for those who found jobs at the end of their unemployment spells. To understand these results, I propose several possible explanations: heterogenous job search behaviors among those with different UI durations, a psychological burden of impending UI exhaustion, a negotiation advantage of a higher reservation wage for those with longer eligibility, or the possibility that my data simply failed to observe a positive relationship between UI duration and unemployment duration. Finally, I present one possible policy response to these findings, aimed at reducing the problem of free riding.