Unemployment benefits and older workers Jan 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 to 54 years55 to 64 years MenWomenMenWomen Netherlands UK Germany France United States OECD

Unemployment rates to 54 years55 to 64 years MenWomenMenWomen Netherlands UK Germany France United States OECD

Employment rates years Men Women

Older workers in the Netherlands Unemployment rates workers aged 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 Before – below 57.5: cycle before 2.Before – above 57.5: cycle before + age 3.After – below 57.5: cycle after 4.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

Inflow by age

Annual inflow Diff Diff Diff. (%)

3 months prob to find job

3 months prob to find job

3 months prob to find job Diff Diff Diff. (%)

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