Unemployment benefits and job finding: evidence from Spain’s policy reforms across the business cycle

Purpose This article analyses how unemployment benefit generosity affects benefit duration by exploiting two opposing policy reforms carried out in Spain – one during a deep recession (2012) and the other in a period of strong job growth (2023). Both reforms altered the replacement rate (RR) of unemployment insurance (UI) benefit recipients, with the 2012 cut reducing it after six months of receiving benefit and the 2023 reform increasing it. Design/methodology/approach The paper uses universe-level administrative data from the Spanish Public Employment Service. It applies causal survival models (using inverse probability weighting, IPW) to estimate the effects of changes in benefit generosity on unemployment benefit duration. The approach allows for comparative analysis across economic cycles and examines interactions with potential benefit duration. As a robustness check, we estimate a difference-in-differences model. Findings The study finds that the 2012 reduction in UI benefits led to a decrease in aggregate benefit duration, while the 2023 increase slightly extended it. However, both reforms produced heterogeneous responses: individuals with medium-to-high benefits and shorter potential durations (and those with the longest entitlements in 2012) reacted more strongly to changes in generosity. Moreover, while the 2012 reform affected prime-age workers across most sectors, the 2023 reform shows more selective effects, concentrated among prime-age workers and those in more skilled jobs. Results confirm that the effects of UI generosity vary across the business cycle – being stronger in recessions and weaker in expansions. Research limitations/implications While the study provides evidence on how benefit levels affect unemployment benefit duration, it cannot assess impacts on household income or economic stability due to the absence of household-level data nor does it evaluate post-unemployment job quality in terms of pay, stability or working conditions. Practical implications The findings highlight the need for countercyclical UI design that balances efficiency and equity. Reforms should consider heterogeneity among recipients, as groups with higher benefits or shorter entitlements respond more strongly to changes in generosity. Effective UI design requires complementing benefit adjustments with active labour market policies to mitigate disincentive effects. Overall, timing and macroeconomic context are crucial to ensure that UI reforms balance efficiency, equity and fiscal sustainability. Originality/value The paper provides novel evidence from Spain by comparing two opposite UI reforms implemented under contrasting macroeconomic conditions within the same institutional framework. It analyses how changes in benefit generosity interact with PBD and differ across economic cycles. This study contributes to the international debate on the optimal design of benefit systems by providing empirical evidence from one of the EU countries with the highest structural unemployment and strong cyclical sensitivity.