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Unemployment Insurance, Wage Pass-Through, and Endogenous Take-Up

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  • Martin Gervais
  • Roozbeh Hosseini
  • Lawrence Warren

Abstract

This paper studies how unemployment insurance (UI) generosity affects reservation wages, re-employment wages, and benefit take-up. Using Benefit Accuracy Measurement (BAM) data, we estimate a cross-sectional elasticity of reservation wages with respect to weekly UI benefits of 0.014. Exploiting state variation in Pandemic Unemployment Assistance (PUA) intensity and the timing of federal supplements, we find that expanded benefits during COVID-19 increased reservation wages by 8–12 percent. Using CPS rotation data, we also document a 9 percent rise in re-employment wages for UI-eligible workers relative to ineligible workers. Over the same period, the UI take-up rate rose from roughly 30 to 40 percent; Probit estimates indicate that higher benefit levels, rather than changes in observables, account for this increase. A directed search model with an endogenous filing decision replicates these facts: generosity primarily operates through the extensive margin of take-up, which mutes the pass-through from benefits to wages.

Suggested Citation

  • Martin Gervais & Roozbeh Hosseini & Lawrence Warren, 2025. "Unemployment Insurance, Wage Pass-Through, and Endogenous Take-Up," Working Papers 25-59, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:25-59
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    File URL: https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-59.pdf
    File Function: First version, 2025
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