Figure 2

Change in aggregate employment following a reduction in the initial unemployment benefit replacement rate: the influence of economic conditions. Note: The lower line corresponds to the impact of the reform during “bad” times, while the upper line represents the impact during “good” times, corresponding to the minimum and maximum levels of the unemployment gap, respectively, as observed across the sample (i.e. across all countries and time). The central broken line represents the impact of the reform when the unemployment gap equals its median value. The pre-reform unemployment gap is calculated as the difference between the structural unemployment rate (i.e. the NAIRU, or non-accelerating inflation rate of unemployment – defined as the level of unemployment compatible with stable inflation) and the observed level of unemployment in the estimation sample.