The duration & repeat of unemployment benefit spells: a study of a cohort of New Zealand unemployment beneficiaries 1992-1995

Abstract

This paper analyses the duration, repetition and incidence of benefit spells for a cohort of Unemployment Beneficiaries. Panel data for a three year period 1992-1995 was constructed from individual beneficiary records provided by the Department of Social Welfare's Social Policy Agency. This panel data is a 20% random and anonymous sample drawn from 41,000 Standard Unemployment Benefits granted over the three month period from 1 April to 30 June 1992. The job-search model is used as the general framework to examine the pattern of unemployment spells. This model predicts a pattern of infrequent short spells of unemployment, and provides a theoretical justification for the methodology adopted in this paper. The intention is to test, in a general sense, the efficacy of this influential theory of labour supply by means of a comparison of its predictions with the empirical findings from the analysis of Unemployment Benefit data. The analysis relies extensively on cross-tabulations and graphs. Lifetable methodology is used for the calculation and analysis of exit rates from the Unemployment Benefit. This methodology is chosen because it is simple, and a suitable first step in exploring broad underlying patterns in the duration and repetition of benefit receipt. It lays the necessary groundwork for more detailed work in future research. The expected median duration at the beginning of an Unemployment Benefit spell is found to be about 6 months. However, over half of the total number of days on Unemployment Benefits was experienced by only a quarter of beneficiaries. Sex, age, and location had a statistically significant association with spell duration: being middle aged, male, and living in the North Island increased the probability of a long spell. Two-thirds of the Unemployment Beneficiaries experienced a second spell, and the vast majority (88%) of those who returned for a second spell did so within a year of exit from the first spell. The extent of spell repetition is considerably higher than repeat rates found in the only comparable New Zealand study. Females and those living in the South Island tended to have more repeat spells. Long term and repeat unemployment seem to be quite separate patterns. Unemployment Beneficiaries are thus not exposed to 'double jeopardy' (Jenkins 1995b). Neither long-term unemployment nor a high rate of spell repetition are explained adequately by the job-search model. One crucial aspect that is lacking in the job-search model is an institutional dimension. The patterns of exit and repeat may be less the result of a change in the search-efficiency or motivation of individual job-seekers, than of the broader administrative features and practices that are part of the receipt of a benefit, or the features of the labour market in which a job-seeker competes.