When Institutions Interact: How the Effects of Unemployment Insurance are Shaped by Retirement Policies

This paper shows empirically that the non-employment effects of unemployment insurance (UI) for older workers depend in a first-order way on the structure of retirement policies. Using German data, it first presents reduced-form evidence of these interactions, documenting large bunching in UI inflows at the age that allows workers to claim their pension following UI expiration. Then it estimates a dynamic life-cycle model and use it to directly quantify how the effects of UI vary with retirement policies. Accounting for interactions across UI and retirement institutions also helps explain otherwise difficult-to-explain trends in the unemployment rate of older German workers.