An Evaluation of Paid Leave: Participation and Labor Market Tightness

This paper analyzes a labor market program which enables workers to leave employment temporarily with a compensation financed by the taxpayers. The main aim of the program was to increase the chances of the unemployed finding a job. However, the empirical analysis reveals a clear negative relationship between the unemployment rate and transition rates from employment into the paid leave scheme. Program participation is low, precisely in those labor market states, where the scheme has a potential to perform as a remedy by increasing the transition rate from unemployment to employment. Several possible explanations are discussed.