Working Paper

Labor force participation, job search effort and unemployment insurance in the laboratory

Authors

  • Wolfgang Lechthaler
  • Patrick Ring
Publication Date

How the provision of unemployment benefits affects employment and unemployment is a debated issue. In this paper, we aim at complementing theoretical and empirical contributions to this debate with a laboratory experiment: We simulate a job market with search effort and labor force participation decisions while varying the maximum length of unemployment benefit eligibility. Our results reveal two separable, opposing effects: Individuals within the labor force search with lower effort when unemployment benefits are extended. However, individuals are more likely to participate in the labor force and to actively search for a job. Concerning employment, the second effect dominates so that unemployment benefits raise employment.

Info

JEL Classification
E70, J21, J65

Key Words

  • economic ression
  • experiment
  • Job Search
  • Labor Force Participation
  • laboratory
  • unemployment insurance