Unemployment Insurance in Welfare States: Soft Constraints and Mild Sanctions

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Røed, Knut and Lars Westlie




Nummer i serie: 13


Based on a sequence of reforms in the Norwegian unemployment insurance (UI) system, we show that activity-oriented UI regimes - i.e., regimes with a high likelihood of required participa-tion in active labor market programs, duration limitations on unconditional UI entitlements, and high sanction probabilities - deliver substantially shorter unemployment spells than pure income-insurance regimes. Soft constraints, in the form of activity requirements or small benefit cuts af-ter a pre-specified UI duration, have many of the same behavioral consequences as threats of complete benefit termination. Early introduction of a soft constraint appears particularly effec-tive; our results show that the expected unemployment duration falls by half a day for each week the soft constraint is moved ahead in the UI spell. Mild sanctions, in the form of temporary bene-fit terminations in response to inadequate search effort or excess choosiness, cause a significant rise in the job hazard.


Competing risks, unemployment insurance, timing-of-events, NPMLE, MMPH


C14, C15, C41, J64, J65, J68

Prosjekt info:

Oppdragsgiver: Arbeids- og sosialdepartementet og Finansdepartementet
Oppdragsgivers prosjektnr.:
Frisch prosjekt: 1391 - Arbeidsmarkeds- og trygdeforskning




Strategic Institute Program on Labor Market and Pension Research, financed by the Norwegian Ministry of Labor and Social Inclusion and the Norwegian Ministry of Finance