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A quantitative analysis of relaxing UI eligibility requirements

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  • Chao, Ying H.

Abstract

From 1985 to 2019, administrative data indicates that 22% of unemployment insurance (UI) applicants were denied benefits annually due to eligibility requirements. This paper develops a quantitative equilibrium search model that incorporates realistic UI application processes and examines workers’ UI decisions and employment outcomes. Using this model, I analyze the role of eligibility requirements and the implications of incorporating them into policy evaluations. Relaxing earnings requirements increases take-up rates and generates a 4% welfare gain, benefiting low-income workers the most. In contrast, eliminating the separation requirement yields the highest welfare gain but also raises unemployment, highlighting the moral hazard effects of UI expansion. Lastly, a counterfactual analysis shows that ignoring UI eligibility leads to misleading predictions, overstating take-up rates and understating precautionary savings, underscoring the need to properly account for eligibility requirements in policy evaluations.

Suggested Citation

  • Chao, Ying H., 2025. "A quantitative analysis of relaxing UI eligibility requirements," Labour Economics, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:labeco:v:94:y:2025:i:c:s0927537125000399
    DOI: 10.1016/j.labeco.2025.102712
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    More about this item

    Keywords

    Unemployment insurance; Eligibility requirements; Directed search;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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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