Unemployment insurance and management of the older workforce in a dual labor market: Evidence from France

• Is unemployment insurance (UI) used as an early retirement scheme?
• We analyze the effect of a cut in entitlement duration on older workers' UI inflow.
• A displacement of the spike from age 55 to age 57 appears clearly for insiders.
• There is no or little effect for workers far from retirement and for outsiders.
• The reform rose the mean age of workers dismissed close to retirement by 4 months.

In a context of population aging, reducing early exit from the labor force is a major challenge. In this domain, the role of unemployment insurance (UI) is probably underestimated and its statistical assessment remains insufficient. And yet, when considering a possible separation, it is likely that workers who are close to retirement, and thus their employers if they wish to reduce their workforce, care about UI. In particular, they are likely to care about whether or not, potential benefit duration is long enough to cover the time until retirement. This paper provides evidence in support of this hypothesis for some worker profiles. The analysis is conducted using data from the French employment agency over the period 2001 to 2005. It is based on a natural experiment: on January 1, 2003, the potential benefit duration of UI entrants was sharply reduced. Econometric analysis of the age patterns of UI inflow reveals that the age incentives provided by UI rules greatly influence labor market behaviors: dismissals of insiders close to retirement are often scheduled so that they can receive benefits until retirement. We estimate that the reform increased the mean age at job termination of workers dismissed close to retirement by 4 months. Our findings confirm that UI rules have an impact on inflow into unemployment and that UI is viewed by some employers and/or some workers as an early retirement scheme rather than as insurance against the risk of job loss. Thus, addressing the issue of older workers' participation in the labor market requires consideration of the joint impact of UI and retirement system rules.