Unemployment Insurance and Incentives in Hungary

We investigate the effect of changes in unemployment insurance (UI) rules in Hungary on the outflow rate from the UI register. Existing claims to UI are `grandfathered' in Hungary when UI rules change - new rules are applied only to new claims and existing claims continue to be administered under the old rules. Entitlement periods to UI were cut substantially at the start of 1993 and using non-parametric methods we compare the outflow rate from claims beginning in January 1993 with those beginning in December 1992 - a total sample size of 80,000 claims. Differences in job exit hazards between the December and January samples are found for some work history groups, but there are no sharp rises in the hazards before expiry of UI entitlement. Hazards of exits to labour market programmes do rise just before UI expiry. The results suggest the unemployed in Hungary to be fairly inelastic to changes in UI benefits.