Use and misuse of unemployment benefits for early retirement

Unemployment insurance (UI) in some countries is one of the most widely used routes to early
retirement. Accordingly, firms lay off elderlyworkerswhosewages exceed their productivity. These
workers then receive unemployment benefits until they enter formal retirement, even though they
have effectively already exited the labor market. To persuade theminto finding the deal acceptable,
they quite often may also receive some additional compensation from their employers.
In this paper we consider three routes of transition fromwork to formal retirement that rely on
UI: (i) standard unemployment compensation, (ii) public early retirement program yielding
benefits higher than the unemployment compensation and (iii) unemployment compensation
along with an income supplement provided by the former employer. The study examines under
which conditions these three alternative practices can occur.
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