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A Distinctive System: Origins and Impact of U.S. Unemployment Compensation

In: The Defining Moment: The Great Depression and the American Economy in the Twentieth Century

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  • Katherine Baicker
  • Claudia Goldin
  • Lawrence F. Katz

Abstract

Unemployment compensation in the United States was signed into law in August 1935 as part of the omnibus Social Security Act. Drafted in a period of uncertainty and economic distress, the portions that dealt with unemployment insurance were crafted to achieve a multiplicity of goals, among them passage of the act and a guarantee of its constitutionality. Along with the federal-state structure went experience-rating and characteristics added by the states, such as the limitation on duration of benefits. The U.S. unemployment compensation system is distinctive among countries by virtue of its federal-state structure, experience-rating, and limitation on benefits. We contend that these features were products of the times, reflecting expediency more than efficiency, and thus that UI would have been different had it been passed in another decade. But how different is the UI system in the United States because of these features, and how have they affected the U.S. labor market? We present evidence showing that more seasonality in manufacturing employment in 1909-29 is related to higher UI benefits from 1947 to 1969, if a state's manufacturing employment share is below the national mean. Lobbying activities of seasonal industries appear important in the evolution of the parameters. We also present suggestive evidence on the relationship between declining seasonality and experience-rating.

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This chapter was published in:

  • Michael D. Bordo & Claudia Goldin & Eugene N. White, 1998. "The Defining Moment: The Great Depression and the American Economy in the Twentieth Century," NBER Books, National Bureau of Economic Research, Inc, number bord98-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 6895.

    Handle: RePEc:nbr:nberch:6895

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    1. Barsky, Robert B & Miron, Jeffrey A, 1989. "The Seasonal Cycle and the Business Cycle," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 503-34, June.
    2. Patricia M. Anderson & Bruce D. Meyer, 1993. "The Unemployment Insurance Payroll Tax and Interindustry and Interfirm Subsidies," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 7, pages 111-144 National Bureau of Economic Research, Inc.
    3. Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(4), pages 1015-42, November.
    4. Green, David A & Riddell, W Craig, 1993. "The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 11(1), pages S96-147, January.
    5. Rebecca Blank & David Card & Whitney Newey, 1988. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 623, Princeton University, Department of Economics, Industrial Relations Section..
    6. Bruce D. Meyer & Dan T. Rosenbaum, 1996. "Repeat Use of Unemployment Insurance," NBER Working Papers 5423, National Bureau of Economic Research, Inc.
    7. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 73(4), pages 541-59, September.
    8. Daniel S. Hamermesh & Daniel T. Slesnick, 1995. "Unemployment Insurance and Household Welfare: Microeconomic Evidence 1980-93," NBER Working Papers 5315, National Bureau of Economic Research, Inc.
    9. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, Elsevier, vol. 53(1), pages 1-29, January.
    10. Anderson, Patricia M & Meyer, Bruce D, 1997. "Unemployment Insurance Takeup Rates and the After-Tax Value of Benefits," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(3), pages 913-37, August.
    11. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, American Economic Association, vol. 68(5), pages 834-46, December.
    12. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(5), pages 937-57, October.
    13. Deere, Donald R, 1991. "Unemployment Insurance and Employment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 9(4), pages 307-24, October.
    14. Jonathan Gruber, 1994. "The Consumption Smoothing Benefits of Unemployment Insurance," NBER Working Papers 4750, National Bureau of Economic Research, Inc.
    15. Patricia M. Anderson & Bruce D. Meyer, 1994. "The Effects of Unemployment Insurance Taxes and Benefits on Layoffs Using Firm and Individual Data," NBER Working Papers 4960, National Bureau of Economic Research, Inc.
    16. Adams, James D., 1986. "Equilibrium taxation and experience rating in a federal system of unemployment insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 29(1), pages 51-77, February.
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    Cited by:
    1. L'Haridon, Olivier & Malherbe, Franck, 2008. "Employment protection reform in search economies," Les Cahiers de Recherche 910, HEC Paris.
    2. Toshihiko Mukoyama & Aysegül Sahin, 2004. "Why did the average duration of unemployment become so much longer?," Staff Reports, Federal Reserve Bank of New York 194, Federal Reserve Bank of New York.
    3. Fehn, Rainer, 2002. "Arbeitsmarktflexibilisierung und Arbeitslosigkeit," Wirtschaftswissenschaftliche Beiträge 54, Julius-Maximilians-Universität Würzburg, Lehrstuhl für Volkswirtschaftslehre, insbes. Wirtschaftsordnung und Sozialpolitik.
    4. Michael Huberman & Chris Minns, 2005. "Hours of Work in Old and New Worlds: The Long View, 1870-2000," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp95, IIIS.
    5. Hans H. Glismann & Klaus Schrader, 2001. "Alternative Systeme der Arbeitslosenversicherung � Das Beispiel der Vereinigten Staaten und des Vereinigten Königreichs," Kiel Working Papers 1032, Kiel Institute for the World Economy.
    6. Blanchard, Olivier & Tirole, Jean, 2006. "The Joint Design of Unemployment Insurance and Employment Protection: A First Pass," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 258, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Olivier L'Haridon & Franck Malherbet, 2002. "Unemployment Compensation Finance and Aggregate Employment Fluctuations," Working Papers, Centre de Recherche en Economie et Statistique 2002-48, Centre de Recherche en Economie et Statistique.
    8. Neugart, Michael, 2005. "Unemployment insurance: The role of electoral systems and regional labour markets," European Journal of Political Economy, Elsevier, Elsevier, vol. 21(4), pages 815-829, December.
    9. Donald O. Parsons & Torben Tranæs & Helene Bie Lilleør, 1999. "Voluntary Public Unemployment Insurance," EPRU Working Paper Series, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics 03-05, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Jun 2003.

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