Insurance against risk? Cost and compensation of job loss in different welfare states

This study investigates the cost of job loss to household incomes, and the extent to which initial earnings losses are compensated through the labour market, within the household and by the social security programmes. Using survey and administrative data from Denmark, Finland, Germany, and the UK (1990–2018), we estimate short- and long-term effects with a dynamic difference-in-differences model. Job loss reduces household income by about 17% in the UK and 5–6% in other countries during the first year. These losses gradually diminish and disappear over the long run. Across all countries, market compensation (i.e., re-employment) is the main source of compensation, while the role of household and state compensations vary in line with the national compensation strategies. State compensation is crucial in mitigating immediate income losses, while market compensation becomes even more important over time. Household compensation largely substitutes for weaker market and state protections.