Unemployment Insurance and Job Turnover in Spain

Abstract

The aim of this paper is to shed some light on the potential relationships between the unemployment insurance system and the labour market turnover trying to move further the traditional view that this system has only behavioral consequences from the labour supply side of the labour market. This study assumes heterogeneity in the impact of the incentives embedded in the unemployment insurance system, depending on the type of labour market transition (quits versus layoffs and recalls versus new job entrances) and the worker�s attachment to the labour market (gender and type of contract). The results show that unemployment benefits appear to favour job turnover and firms and workers´s decisions seem to matter on job turnover. The layoff hazard rate increases as workers qualify for unemployment benefits while the quit hazard rate remains stable. Similarly, employment inflow increases sharply after exhaustion of unemployment benefits. The timing and importance of the exit differs between recalls and new job entry and it depends on the worker�s attachment to the labour market. These differences also call into evidence that firm´s and worker´s decisions matter in the duration of unemployment.