Health and Welfare: The Impact of Long-Term Unemployment Benefits on Middle-Aged Workers

A study titled “The Health and Labour Market Effects of Long-Term Unemployment Benefits”, written by our researcher Judit Vall Castelló along with Manuel Serrano Alarcón (European Comission) and Ignacio Garcia-Perez (Universidad Pablo de Olavide) sheds light on the unintended benefits of unemployment schemes beyond financial security.

The research examines the impact of a 2012 reform in Spain that increased the age eligibility for non-contributory long-term unemployment (LTU) benefits from 52 to 55. This policy shift created a natural experiment, allowing researchers to compare outcomes for those born just before and after the cutoff. The study provides evidence that LTU benefits protect both the physical and mental health of disadvantaged middle-aged workers, particularly men, while also influencing labour market and welfare program dynamics.

The findings reveal a significant reduction in injury-related hospitalisations (12.9%) and a decreased probability of mental health diagnoses for eligible men. Improvements in self-reported health and depression scores further underscore the benefits of LTU schemes. Interestingly, no significant health effects were observed for women, which researchers attribute to sectoral differences—men were more likely to work in physically demanding fields like construction.

The study highlights the reform’s broader implications for the labour market. Eligible individuals, particularly men, were more likely to remain attached to the formal labour market and less likely to rely on partial disability benefits. This substitution effect between welfare programs underscores the interconnected nature of unemployment benefits and disability insurance.

This research challenges the traditional focus on the disincentive effects of unemployment benefits on labour supply. Instead, it emphasizes their role in protecting vulnerable populations from health shocks, particularly for those in low-education, high-risk sectors. The study estimates that avoided injury hospitalisations saved the Spanish healthcare system approximately €1.86 million annually, demonstrating the externalities of targeted social programs.

The findings have significant policy implications. They highlight the need to view LTU benefits as more than economic support—they are a health safety net for disadvantaged workers. Eliminating such programs could exacerbate health disparities and increase public healthcare costs, particularly for middle-aged workers with limited job prospects.

This study adds to the growing literature on the interplay between unemployment insurance, health, and welfare systems, offering new insights into how targeted policies can address the complex challenges faced by vulnerable populations.

Discover more about the UB School of Economics’ research! Explore the full list of our researchers and their latest research here.

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