This paper studies how the parameters of the unemployment insurance (UI) affect labor market outcomes and ultimately welfare in the Netherlands. First, I exploit the kinked policy rule for the UI benefit to estimate the causal effect of the benefit level on non-mployment duration and re-employment job quality. Second, using the discontinuous policy rule for the potential UI duration I identify the effect of the entitlement period on the same measures. Raising the benefit level improves re-employment wages, but does not affect covered unemployment and non-employment duration. On the contrary, the extension of the entitlement period impacts neither job finding, nor re-employment wages, but it increases the number working hours marginally. Re-employment job quality gains reduce the budgetary cost of raising the UI benefit significantly. The calibration of the sufficient statistic formula of Chetty (2008) suggests that the ratio of liquidity and moral hazard effects is in the magnitude of one and raising the benefit level would improve welfare in the Netherlands.

Discussant: Lennart Ziegler (University of Amsterdam)