Unemployment insurance and duration
            of unemployment : evidence from Slovenia's transition
Between 1990 and 1992 in Slovenia,
            recipients of unemployment insurance (UI) benefits tended to
            remain (formally) unemployed until their benefits expired,
            before taking a job. Institutional set-up suggests, and
            labor surveys show, that many of the recipients were
            actually working while collecting UI benefits. In the
            spirit, if not in the letter of the law, the UI system was
            abused. The author shows that the escape rate of the
            recipients of unemployment compensation to employment
            increased dramatically just before the potential exhaustion
            of unemployment benefits - and decreased equally
            dramatically after benefits were exhausted. When grouped by
            the potential duration of benefits, unemployment length
            varies significantly.  The unemployed with longer potential
            benefits stay unemployed longer. Because these groups differ
            in their characteristics (for example, in age), this does
            not prove the "waiting behavior" of the
            recipients. However, exits to employment dramatically
            increase just before exhaustion - and that does prove
            waiting behavior. The pattern of an increased escape rate
            just before benefits are exhausted and its dramatic fall
            thereafter is more rigorously demonstrated using hazard
            model estimation.  Possibilities for informal employment are
            abundant in Slovenia, and the environment of transition
            economies  generally seems conducive to misuse of the UI
            system. Legislative loopholes and failure to enforce the
            labor code allowed the unemployed to work and to collect
            benefits. The monitoring of job searches was also lax. The
            author's calculations suggest that reducing the
            duration of benefits would reduce the incidence of
            unemployment, its duration, the amount spent on UI benefits,
            and the inefficiencies generated by raising taxes to finance
            unemployment insurance. At the same time, reducing the
            duration of benefits would not impair job matches or crowd
            out jobs for nonrecipients. True, despite increased
            efficiency generally, the workers with the least job
            mobility might suffer hardships for the least mobile group
            and greater efficiency generally would have to be resolved
            in the political sphere. Redesigning the system for better
            targeting would be less controversial. One way to reduce UI
            spending without seriously curtailing incentives to work
            would be to reduce the benefits in proportion to earnings
            from irregular work. Another possibility is stricter
            monitoring of the job searches of the unemployed. To reduce
            spending and make "double dipping" less
            attractive, old-age insurance could be removed from the
            package of benefits the UI system offers.  Also, counselors
            who help the unemployed find jobs (and who may thus develop
            a close relationship with them) should perhaps not be
            expected to be able to make impartial decisions about
            disqualifications for benefits; someone else should do that.
            In addition to better targeting, a "benefit transfer
            program" - a voluntary program that converts UI
            benefits Also, counselors who help the unemployed find jobs
            (through vouchers) into hiring subsidies - seems
            particularly attractive for Slovenia and other transition
            economies. In a way, such a program would legalize the
            "double-dipping" that has been taking place in
            Slovenia and possibly elsewhere. It would legalize practices
            that have undermined the system's credibility. But it
            might improve fiscal savings while sustaining the incentive
            to find jobs.