The Effect of Unemployment Benefits on Health, Living Standards and Unemployment in Turkey : Evidence from Structural Equation Modelling and Regression Discontinuity Design

Unemployment can negatively affect individuals, their families and communities in various ways. When individuals are out of work may experience mental and physical health problems, material deprivation and poverty. This study aims to examine the impact of unemployment benefits on health, living standards and unemployment in Turkey using the panel Income and Living Conditions Survey (ILCS) over the period 2007-2015. We employ a structural equation modelling (SEM) to take into account the simultaneous relations among those variables. Moreover, we apply the propensity score matching (PSM) to reduce the selection bias. As a robustness check, we also propose a regression discontinuity design (RDD) within the SEM framework to infer for causality. Our findings suggest a significant impact of unemployment benefits on health and living standards. Moreover, we show that unemployment benefits play an important role in terms of improvement in health up to 5 months and living standards for up to 4 months, but after these periods the effects are vanished. This indicates that this type of social benefits has only a short-run effect. Furthermore, the findings show that benefits are not useful to increase the employment and they decrease the incentive of looking for a new job