Unemployment Insurance and Employment
This article examines the impact of unemployment insurance on the allocation of labor across industries. An overlooked aspect of unemployment insurance is the effect of imperfect experience rating on hiring. Firms in more stable industries generally pay more into the unemployment insurance system than their workers ever receive in benefits, thus subsidizing more volatile industries. The results indicate that industry employment shares are significantly affected by unemployment insurance and that there is a net shift of resources from the service industry to the construction industry. The estimates also imply that layoff unemployment is increased by about 5 percent because of unemployment-insurance-induced employment shifts. Copyright 1991 by University of Chicago Press.