The impact of varying penalty values on compliance with unemployment payment requirements: An analysis using 2015/16 Australian National Data

Abstract

Existing empirical research on unemployment payment schemes has demonstrated that financial penalties affect unemployment payment recipients’ behaviour. However, limited empirical work exists on the effects of varying penalty values as well as compliance with requirements (as opposed to employment outcomes). In order to address this gap in the literature, this paper examines the extent to which higher-value penalties enhance unemployment payment recipients’ compliance with requirements. It does this using a natural experiment under Australian administrative rules, whereby identical recipients can face penalties varying in value by 100 per cent. Those receiving larger penalties were found to be significantly more likely to comply with requirements compared to those receiving smaller penalties. However, contrary to expectations, no evidence was found supporting earlier evidence that women respond more strongly to penalties than men.