How Changes in Benefits Entitlement Affect the Duration of Unemployment

This paper investigates the disincentive effects of the potential duration of unemployment insurance (UI) benefits. The disincentive effects are identified by exploiting changes in the UI system in Slovenia, which involved substantial reductions in the potential benefit duration and had characteristics of a ‘natural experiment’. We find that the change had a positive effect on the exit rate out of unemployment – both to employment and to other destinations – at various durations of unemployment spells and for many categories of unemployed workers.