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Unemployment insurance take-up rates in an equilibrium search model

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  • Auray, Stéphane
  • Fuller, David L.
  • Lkhagvasuren, Damba

Abstract

From 1989 to 2012, on average, 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. To understand the implications of these “unclaimed” benefits, we develop a directed search model with an endogenous UI take-up rate. In equilibrium, UI collectors have longer unemployment durations relative to non-collectors. The difference results from two forces, a consumption effect and a private information effect, as UI collection histories are unobservable. We characterize both effects analytically and quantitatively. With an endogenous take-up rate, the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI benefit level, relative to the standard model with a 100% take-up rate. The private information effect on non-collector job finding rates plays an important role in this result.

Suggested Citation

  • Auray, Stéphane & Fuller, David L. & Lkhagvasuren, Damba, 2019. "Unemployment insurance take-up rates in an equilibrium search model," European Economic Review, Elsevier, vol. 112(C), pages 1-31.
    • Handle: RePEc:eee:eecrev:v:112:y:2019:i:c:p:1-31
    DOI: 10.1016/j.euroecorev.2018.11.005
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    Keywords

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    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • 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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