The Spike at Bene t Exhaustion : Leaving the Unemployment System or Starting a New Job ?

One of the best-known empirical results in public …nance and labor economics is the " spike " in the exit rate from unemployment around the expiration of jobless bene…ts (see e. surge in the hazard rate is widely interpreted as evidence that recipients are waiting until their bene…ts run out to return to work. The spike in exit rates has become a leading example of the distortionary e¤ects of unemployment insurance (UI) and social insurance programs more generally (see e.g., Martin Feldstein, 2005). In this paper, we present the results of a meta-analysis of the literature on unemployment exit rates around bene…t exhaustion, as well as new evidence using administrative data for a large sample of Austrian job losers. Our main …nding is that the way in which unemployment spells are measured has a large e¤ect on the magnitude of the spike at exhaustion, both in existing studies and in our Austrian data. Spikes are generally smaller when the spells are measured by the time to next job than when they are de…ned by the time spent on the unemployment system. In the Austrian data, we …nd a large spike in the exit rate from registered unemployment at the point of bene…t exhaustion, consistent with earlier studies (e.g., Rafael Lalive et. al., 2007). However, the hazard of re-employment rises only slightly at the same point. Even recalls to the previous employer –which account for one-…fth of spell terminations in our data –increase by no more than 20% at bene…t exhaustion. We conclude that most job seekers in Austria are not waiting to return to work until their UI bene…ts are exhausted. Rather, a large fraction simply leave the unemployment registry once their bene…ts end and they are no longer required to register to maintain their eligibility for bene…ts. This …nding underscores the importance of distinguishing between the e¤ects of government programs such as UI on the decision to work vs. their auxiliary e¤ects on the classi…cation of non-working time. We are extremely grateful to Rudolph Winter-Ebmer and Jospeh Zweimüller for assistance in obtaining the data used in this study. Funding was provided by the Center for Labor Economics at UC Berkeley. A more detailed version of this paper with additional results is available as NBER working paper 12XXX. 2 A similar point is made by David Card and W. Craig Riddell (1993) in explaining the much larger divergence between unemployment …