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Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design

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  • Landais, Camille

    ()
    (London School of Economics)

Abstract

I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from the late 1970s to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how, in the tradition of the dynamic labor supply literature, one can identify the purely distortionary effects of UI using variations along the returns-to-employment profile brought about by exogenous variations in the benefit level as well as in the benefit duration. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7589.

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Length: 84 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7589

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Related research

Keywords: unemployment insurance; regression kink design;

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References

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  1. Landais, Camille & Michaillat, Pascal & Saez, Emmanuel, 2010. "Optimal Unemployment Insurance over the Business Cycle," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8132, C.E.P.R. Discussion Papers.
  2. Simonsen, Marianne & Skipper, Lars & Skipper, Niels, 2010. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Working Papers 10-1, University of Aarhus, Aarhus School of Business, Department of Economics.
  3. David Card & David Lee & Zhuan Pei & Andrea Weber, 2012. "Nonlinear Policy Rules and the Identification and Estimation of Causal Effects in a Generalized Regression Kink Design," NBER Working Papers 18564, National Bureau of Economic Research, Inc.
  4. Dong, Yingying, 2010. "Jumpy or Kinky? Regression Discontinuity without the Discontinuity," MPRA Paper 25427, University Library of Munich, Germany.
  5. Holmlund, Bertil, 1998. " Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 100(1), pages 113-41, March.
  6. Stefano DellaVigna & M. Daniele Paserman, 2004. "Job Search and Impatience," NBER Working Papers 10837, National Bureau of Economic Research, Inc.
  7. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 10(3), pages 379-402, December.
  8. Raj Chetty, 2005. "A General Formula for the Optimal Level of Social Insurance," NBER Working Papers 11386, National Bureau of Economic Research, Inc.
  9. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, Elsevier, vol. 142(2), pages 698-714, February.
  10. Hopenhayn, H. & Nicolini, P.J., 1996. "Optimal Unemployment Insurance," RCER Working Papers 421, University of Rochester - Center for Economic Research (RCER).
  11. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 701-752.
  12. Yingying Dong, 2011. "Jumpy or Kinky? Regression Discontinuity without the Discontinuity," Working Papers 111207, University of California-Irvine, Department of Economics.
  13. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 143-213.
  14. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  15. Krueger, Alan B. & Mueller, Andreas I., 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," IZA Discussion Papers 5450, Institute for the Study of Labor (IZA).
  16. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 92(3-4), pages 722-737, April.
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Citations

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Cited by:
  1. Inderbitzin, Lukas & Staubli, Stefan & Zweimüller, Josef, 2013. "Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution," IZA Discussion Papers 7330, Institute for the Study of Labor (IZA).
  2. David Card & David Lee & Zhuan Pei & Andrea Weber, 2012. "Nonlinear Policy Rules and the Identification and Estimation of Causal Effects in a Generalized Regression Kink Design," NBER Working Papers 18564, National Bureau of Economic Research, Inc.
  3. François Gerard & Gustavo Gonzaga, 2013. "Informal Labor and the Cost of Social Programs: Evidence from 15 Years of Unemployment Insurance in Brazil," Textos para discussão 608, Department of Economics PUC-Rio (Brazil).
  4. Holmlund, Bertil, 2013. "What do labor market institutions do?," Working Paper Series, Center for Labor Studies, Uppsala University, Department of Economics 2013:14, Uppsala University, Department of Economics.
  5. Jean-Baptiste Michau, 2012. "Optimal labor market policy with search frictions and risk-averse workers," Working Papers hal-00757173, HAL.
  6. Ando, Michihito, 2013. "How Much Should We Trust Regression-Kink-Design Estimates?," Working Paper Series, Uppsala University, Department of Economics 2013:22, Uppsala University, Department of Economics.

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