How Do Reductions in Potential Benefit Duration Affect Medium-Run Earnings and Employment for Older Workers?

We study how a reduction of the potential duration of unemployment benefit receipt (PBD) affects medium-run earnings and employment of job seekers. The analysis is based on a Swiss reform that reduced PBD from 24 months to 18 months for job seekers younger than 55 years in 2003. Adopting a difference-indifference framework, we find that this reduction in PBD increases employment and earnings of job seekers aged 50 to 54 years not only in the first 24 months after entering unemployment but also up to 50 months after entering. The positive medium-run effects are concentrated among job seekers who were previously employed in R&D intense industries and whose previous occupation consisted mainly of cognitive tasks. These findings suggest that unemployment insurance has an important role in containing depreciation of human capital or long-term unemployment stigma among older job seekers. JEL Classification: C41, J64, J65