The Effects of Unemployment Benefits in Italy : Evidence from an Institutional Change

We document the effects of a change in the replacement rate and potential duration of the Italian Ordinary unemployment benefits scheme on the job search process. As of January 2001, benefits were extended from 6 to 9 months selectively for workers aged 50 or more, and the replacement rate was raised from 30 to 40 percent for all workers. We draw on social security records that cover the employment and welfare histories of a representative sample of individuals. Comparisons of eligible and non eligible workers across the relevant age and time thresholds conducted on a variety of samples and conditional on several specifications of the information set suggest that (a) the average duration of benefits' collection increased by around one month for individuals entitled to 3 additional months of potential duration, while it did not change significantly for those only exposed to higher replacement rates; (b) the pace of reemployment is never found to be statistically different among claimants exposed to the new regime, although point estimates for those exposed to a longer duration point consistently to a 2-4 percentage points lower probability of reemployment at several horizons. Graphical evidence suggests that job-separation rates did not change with the new regime, while take-up apparently did, although the clear cyclical pattern could bias the picture. We conclude that, if any, the behavioral response induced by such institutional change, must have been economically modest. We discuss reasons why the response may have been so subdued