On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited

Bruno Decreuse (1) , Elvira Kazbakova (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

We revisit the signalling hypothesis, whereby potential employers use the duration of unemployment as a signal as to the productivity of applicants. We suggest that the quality of such
a signal is very low when the unemployed receive unemployment benefits: individuals have good reasons to remain unemployed. Conversely, the signal becomes much more efficient once benefits
have elapsed: skilled workers should not stay unemployed in such cases. Therefore, the potential duration of unemployment benefits should drive employers.expectations and their recruitment
practices. This mechanism can explain why hazards fall after benefit expiration, and why hazards respond more to the potential duration of benefits than to replacement rates.

Mots clés: Worker heterogeneity; Signalling; Hazard rate; Unemployment compensation; Moral hazard

Mots clés: Hétérogénéité des travailleurs; Signal; Sortie du chômage; Indemnisation du chômage; Risque moral

Domaines: Economies et finances

Bruno Decreuse, Elvira Kazbakova. On the spike in hazard rates at unemployment benefit expiration: The signalling hypothesis revisited. 2008. ⟨halshs-00339146⟩