Sanctions and the exit from unemployment in two different benefit schemes

an article by Henna Busk (Pellervo Economic Research PTT, Helsinki, Finland; University of Jyväskylä, Finland) published in Labour Economics Volume 42 (October 2016)

Highlights

• We examine the effect of benefit sanctions on the exit rate from unemployment using the timing-of-events approach.
• The effect of sanctions differs according to the benefits received.
• Sanctions increase the exit rate from unemployment to work among flat-rate labour market support receivers.
• Sanctions increase the exit rate from unemployment to outside the labour force among earnings-related benefit receivers.

Abstract

This paper investigates the effect of benefit sanctions on the exit rate from unemployment using a unique set of rich register data on unemployed Finnish individuals. The timing-of-events approach is applied to distinguish between the selection and causal effects of sanctioning.

The results imply that the effect of sanctions differs according to the benefits received. Sanctions encourage unemployed individuals receiving flat-rate labour market support (LMS) to find jobs, whereas unemployed individuals receiving earnings-related (UI) allowances to leave the labour force.

The encouraging effect of sanctions on active labour market policy programmes is relatively small and statistically significant only among LMS recipients.

JEL classification: C41, J64, J65

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