The Micro and Macro Effects of Changes in Potential Benefit Duration: Evidence from Poland

We quantify aggregate effects of changes in the potential benefit duration (PBD) in Poland using administrative data containing the universe of unemployment spells over more than two decades. Individual workers’ PBD depends on the county unemployment rate relative to the national average in the previous calendar year. We exploit this sharp discontinuity with RDD estimates and construct impulse response functions to estimate effects of a longer PBD at the county-level. After 12 months, the effect of a PBD of 12 vs. 6 months is an increase in the log stock of all unemployed of 0.03 and an increase in the log stock of the directly affected by 0.1. In contrast, we find no evidence on spillovers on indirectly affected unemployed and no effect of PBD on labour market tightness. We document that inflows into unemployment respond strongly to PBD changes. A decomposition of the effects of a longer PBD on the stock of unemployed shows that the effect on inflows is more important than the one on the exit rate.

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