Unemployment benefits and productivity

What is it about?

The effect that different unemployment benefit (UB) schemes have on the productivity of workers has not been studied due to how difficult it is to measure productivity (or effort) at the individual level, and the many confounders that are correlated with the choice of one (UB) institution or the other. We overcome both obstacles by implementing a labor field experiment in which we hire workers under different UB schemes to perform a task that allows for an objective measure of productivity. In contrast with the standard economic theory, our results show that workers' effort is maximised under unconditional UB schemes, and is the lowest under no UB. There are two possible explanations: 1) workers reciprocate with effort more generous UB schemes or 2) workers anticipate the psychological cost of being laid off and, in addition, being paid, and try to avoid such cost.

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Why is it important?

Over 40% of the world countries have some sort of unemployment benefit institutions. Yet the effect of different unemployment benefit schemes on productivity is largely unknown. This is partly because this issue cannot be studied with observational data.

Perspectives