Salvatore Lattanzio (Bank of Italy)
Laura Montenovo and Long Hong
Place-based welfare programs introduce a fundamental tension: while they provide a social safety net in distressed areas, they may inadvertently discourage labor mobility by "locking" workers into weak local labor markets. This paper investigates the consequences of removing such incentives by studying the geographical equalization of unemployment insurance (UI) duration in Italy. We leverage a reform that phased out a place-based UI scheme characterized by significantly longer benefit durations in the economically disadvantaged South. Using a difference-in-differences framework based on age and region of dismissal, we find that a one-day reduction in potential UI duration decreases actual benefit receipt by 0.54 days and shortens non-employment spells by 0.4 days. Crucially, the reform acted as a catalyst for labor reallocation: lower UI generosity significantly increased the probability of workers migrating from the South to high-employment regions in the Center-North. Despite the increased haste in finding work, we detect no decline in job match quality, suggesting that the gains from moving to a more productive labor market offset the reduction in search selectivity. Our results show that generous UI hampers workers' reallocation and therefore productivity with net welfare losses.