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A Context-Robust Measure of the Disincentive Cost of Unemployment Insurance

Author

Listed:
  • Johannes F. Schmieder
  • Till von Wachter

Abstract

This paper proposes a new measure of the disincentive cost of unemployment insurance (UI): the ratio of the behavioral cost (BC) to the mechanical cost (MC) of a UI reform. This measure represents the labor supply distortion relative to the additional (mechanical) transfer from the UI reform. We show the BC/MC ratio naturally arises from a model of optimal UI and can be readily computed and compared across different types of reforms and labor market contexts. We summarize the evidence regarding the BC/MC ratio for existing studies and relate it to typical measures of employment effects of UI.

Suggested Citation

  • Johannes F. Schmieder & Till von Wachter, 2017. "A Context-Robust Measure of the Disincentive Cost of Unemployment Insurance," American Economic Review, American Economic Association, vol. 107(5), pages 343-348, May.
  • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:343-48
    Note: DOI: 10.1257/aer.p20171026
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    References listed on IDEAS

    as
    1. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    2. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    3. 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.
    4. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series WP2011-063, Boston University - Department of Economics.
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    Citations

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    Cited by:

    1. Ye, Han, 2018. "The Effect of Pension Subsidies on Retirement Timing of Older Women: Evidence from a Regression Kink Design," IZA Discussion Papers 11831, Institute of Labor Economics (IZA).
    2. Sarah Bana & Kelly Bedard & Maya Rossin-Slater, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," NBER Working Papers 24438, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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