Abstract The increased interest in labor market theory and policy during the past years has also intensified the interest in the design and effects of the unemployment insurance system. Previously, economists concentrated mainly on the role of the system as an automatic stabilizer and on its effect on the income distribution. Lately, however, the attention has been primarily directed towards the effects of unemployment insurance on the allocation of resources and especially on the composition and extent of unemployment. It has been investigated, amons other things, if the creation of unemployment insurance or an increase in unemployment benefits within a given area has involved a rise in unemployment.