(Forthcoming Article) - We study how outside options affect workers’ incentives to exert effort. We exploit quasiexperimental variation from age- and experience-based cutoffs in Austria’s unemployment insurance (UI), and proxy effort with absenteeism. Extending potential UI benefit duration increases absenteeism, with larger effects for workers facing higher unemployment risk, those employed at declining or low-wage firms, or those on flatter wage profiles. These results are consistent with a relational contracting model where effort reductions caused by higher outside options are more pronounced if the perceived relationship value is small.