Benefit Entitlement and the Labor Market: Evidence from a Large-Scale Policy Change

This paper analyzes the impact of the Austrian Regional Extended Benefit Program (REBP) on the labor market outcomes for elderly workers in Austria. The REBP extended entitlement to regular unemployment benefits from 30 weeks to a maximum of 209 weeks for elderly indi-viduals in certain regions. We find that the tremendous increase in unemployment associated with REBP was mainly due to severe labor market problems in the steel sector in treated regions. We also find that prolonged benefit entitlement led to a small increase in the inflow to and a moderate decrease in the outflow from unemployment. The REBP induced a strong increase in early retirement and in many cases, in particular for steel workers, entering unem-ployment meant withdrawal from the labor force. Finally, there were non-negligible effects of extended benefits on the level and the distribution of wages