How shortening the potential duration of unemployment benefits affects the duration of unemployment: Evidence from a natural experiment

In this article we investigate the disincentive effects of shortening the potential duration of unemployment insurance ( UI) benefits. We identify these disincentive effects by exploiting changes in Slovenia's unemployment insurance system - a natural experiment that involved substantial reductions in the potential duration of benefits for four groups of workers plus no change in benefits for another group ( which served as a natural control). We find that the change had a positive effect on the exit rate from unemployment - to new jobs and other options - for unemployment spells of various lengths and for several categories of unemployed workers.