Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/279031 
Year of Publication: 
2023
Series/Report no.: 
IZA Discussion Papers No. 16333
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We study the relationship between outside options and workers' motivation to exert effort. We evaluate changes in outside options arising from age and experience cutoffs in the Austrian unemployment insurance (UI) system, and use absenteeism as a proxy for worker effort. Results indicate that a one-percent increase in the potential UI benefit duration increases absenteeism at the intensive margin by 0.28 percent. These results are consistent with a relational contracting model where effort is constrained by the future value of an employment relationship. This model further predicts that effort reductions are more pronounced if benefits assume a larger role in a worker's outside option and if the perceived relationship value is small. Indeed, we find that our effects are stronger for workers with higher potential cost of unemployment, for older workers, in declining rather than in growing firms, in low-wage firms, and for women as well as workers with children.
Subjects: 
outside options
effort incentives
relational contracts
JEL: 
D21
D22
J22
J53
M52
Document Type: 
Working Paper

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