New Insights into Unemployment Duration and Postunemployment Earnings in Germany∗

In light of nonstationary search theory (Mortensen, 1977; Van den Berg, 1990), this paper estimates the effects of benefit entitlement periods and size of unemployment benefits on unemployment durations and postunemployment earnings in West Germany. For unemployment durations, we apply censored Box–Cox quantile regression, which is robust with respect to the specification of the unobserved error distribution and which allows for flexible effects in light of nonstationary search theory. We have access to unique administrative data in Germany on unemployment benefits and benefit entitlement periods. Our results imply that the length of entitlement periods shows only a weak effect on unemployment duration for entitlement lengths up to 12 months and no effect on postunemployment earnings. There are noticeable effects on exits from unemployment for entitlement lengths above 12 months, especially at longer unemployment durations. A high wage replacement rate in the low wage sector seems to elongate considerably the duration of unemployment and it is associated with higher postunemployment earnings.