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Experience Rating as an Automatic Stabilizer

Author

Listed:
  • Mark Duggan
  • Audrey Guo
  • Andrew C. Johnston

Abstract

Unemployment-insurance taxes are experience rated, penalizing firms that dismiss workers. We examine whether experience rating serves as an automatic stabilizer in the labor market. Taking advantage of the variation in layoff penalties across states, we utilize detailed data on state tax schedules and assess whether firms are less responsive to labor-demand shocks when facing higher layoff penalties. Our findings show that average layoff penalties from UI reduce firm adjustments to negative shocks by 11%. This indicates that experience rating contributes to labor market stabilization. For example, during the Great Recession, experience rating preserved nearly a million jobs.

Suggested Citation

  • Mark Duggan & Audrey Guo & Andrew C. Johnston, 2023. "Experience Rating as an Automatic Stabilizer," Tax Policy and the Economy, University of Chicago Press, vol. 37(1), pages 109-133.
    • Handle: RePEc:ucp:tpolec:doi:10.1086/724354
    DOI: 10.1086/724354
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    Cited by:

    1. Korpela, Heikki, 2025. "Experience rating the unemployment insurance tax: simulation results for Finland," Working Papers 173, VATT Institute for Economic Research.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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