Unemployment Insurance Experience Rating of Firms and Layoffs
AbstractThe US unemployment insurance system is experience rated. Firms using the system more often have to pay higher UI taxes in order to cover the additional burden imposed on the system. Experience rating introduces a tax on layoffs which is supposed to counterbalance the implicit layoff subsidy resulting from the UI system. In turn, this is expected to reduce excess layoffs. In reality, however, experience rating implies higher payroll taxes on the remaining workforce of firms experiencing layoffs. In a theoretical model, we show that because of the backward looking nature of experience rating and its incompleteness particularly for firms which have reached their top tax ratings, a world with imperfect experience rating can actually lead to more layoffs than would have occured had there been no experience rating at all.
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Bibliographic InfoPaper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9615.
Date of creation: 1996
Date of revision:
Other versions of this item:
- Cremieux, P.Y. & Van Audenrode, M., 1996. "Unemployment Insurance Experience Rating of Firms and Layoffs," Papers 9615, Laval - Recherche en Politique Economique.
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
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