The impact on income and labour supply of the limitation of the unemployment benefit in Belgium

Nearly half of the unemployed persons are excluded from the unemployment benefit system by the re-form which has been gradually implemented since 1 January 2026 in Belgium, particularly those with a long unemployment history. The main feature of the reform is to limit the duration of unemployment benefit payments to a maximum of two years, depending on work experience, instead of unlimited payments in time as in the old system. Further, the progressivity of the benefit scheme has been strengthened by an increase of 10% of the ceiling amount during the six first months of unemployment, and a re-duction to a lump sum for unemployed persons who are entitled to payments after one year of unemployment.
This paper gives the ex-ante evaluation results on income and labour supply of this reform. The simulation exercise concludes that approximately one third of the excluded persons are expected to return to work, approximately 40% are predicted to receive the social minimum income. The remaining fourth withdraw from the labour market without replacement income, resulting in a significant loss of disposable revenue. Nonetheless the impact on the poverty rate is moderate. Older unemployed, aged 55 years and over, are particularly affected by the reform as more than three fourth of them lose their benefit, representing nearly 22% of the excluded sample. Regional differences are substantial, with Flanders being the least impacted and Brussels-Capital region the most.
To fulfil the evaluation, we use:

• The data from the Crossroad Bank which is a representative sample of the Belgian population with more than 300,000 individuals. It includes a wealth of economic, social and demographic information at both individual and household level,
• The microsimulation model EXPEDITION which is a highly detailed transcription of the Belgian fiscal and social laws into a microsimulation program, which enables to compute a.o. the dis-posable income and its components for each household based on gross salary, labour supply and all the individual and household characteristics. For this exercise, we are particularly interested in the net income from work, replacement income from unemployment or social minimum allowance, depending on eligibility, and additional benefits (children benefit e.g.). EXPEDITION offers also summary statistics and distribution analysis, such as inequality measures depending on income decile, family type, age group, etc.
• The labour supply model LASER which is a Van Soest-style microeconomic model, enhanced by non-parametric random coefficients on the household preference parameters. Furthermore, we introduce unemployment as an additional labour supply ‘’choice’’. Nonetheless, unlike most similar models, we explicitly define equations capturing the unemployment probability, and the potential unemployment duration. In addition, the replacement income from unemployment is de-fined as the average benefit over the expected unemployment period to account for the degressive scheme of the Belgian unemployment benefit (and the limitation in time after reform), when calculating the income associated with the unemployment ‘’choice’’ alternative. Subsequently, each individual (not only those directly affected by the reform) is impacted when choosing the best employment alternative.