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Unemployment Insurance Take-up Rates in an Equilibrium Search Model

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Abstract

In the US unemployment insurance (UI) system, only a fraction of those eligible for benefits actually collect them. We estimate this fraction using CPS data and detailed state-level eligibility criteria. We find that the fraction of eligible unemployed collecting benefits has been persistently below one, and is countercyclical. We show these empirical facts can be explained in an equilibrium search model where firms finance UI benefits via a payroll tax, and are heterogeneous with respect to their specific tax rate, which is experience rated. In equilibrium, low tax firms effectively offer workers an alternative UI scheme featuring a faster job arrival rate and a higher wage offer. Some eligible workers prefer the ``market'' scheme and thus do not collect UI. Quantitatively, the model does well matching key moments in the data. In addition, if all eligible unemployed collect, benefit expenditures increase by 29% and welfare increases by 0.43%. Average search effort decreases, but the unemployment rate and duration decrease as vacancy creation increases.

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  • David Fuller & Stephane Auray & Damba Lkhagvasuren, 2013. "Unemployment Insurance Take-up Rates in an Equilibrium Search Model," Working Papers 13001, Concordia University, Department of Economics.
  • Handle: RePEc:crd:wpaper:13001
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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Two papers on unemployment insurance and misallocation
      by Christian Zimmermann in NEP-DGE blog on 2018-03-05 09:53:24
    2. Unemployment Insurance Take-up Rates in an Equilibrium Search Model
      by Christian Zimmermann in NEP-DGE blog on 2018-11-16 21:29:32

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    Cited by:

    1. Minjoon Lee & Jinhui Bai & Fudong Zhang & Ruediger Bachmann, 2014. "The Welfare Costs of Fiscal Uncertainty: a Quantitative Evaluation," 2014 Meeting Papers 744, Society for Economic Dynamics.
    2. Fuller, David L., 2014. "Adverse selection and moral hazard: Quantitative implications for unemployment insurance," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 108-122.
    3. Julien Albertini & Xavier Fairise & Anthony Terriau, 2020. "Unemployment insurance, Recalls and Experience Rating," Working Papers halshs-02559317, HAL.
    4. Ruediger Bachmann & Jinhui Bai & Minjoon Lee & Fudong Zhang, 2020. "The Welfare and Distributional Effects of Fiscal Volatility: a Quantitative Evaluation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 38, pages 127-153, October.
    5. Kyle F Herkenhoff, 2019. "The Impact of Consumer Credit Access on Unemployment," Review of Economic Studies, Oxford University Press, vol. 86(6), pages 2605-2642.
    6. Stéphane Auray & David L. Fuller, 2020. "Eligibility, experience rating, and unemployment insurance take‐up," Quantitative Economics, Econometric Society, vol. 11(3), pages 1059-1107, July.
    7. Wang, Cheng & Williamson, Stephen D., 2002. "Moral hazard, optimal unemployment insurance, and experience rating," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1337-1371, October.
    8. Serdar Birinci & Kurt Gerrard See, 2018. "How Should Unemployment Insurance vary over the Business Cycle?," 2018 Meeting Papers 69, Society for Economic Dynamics.
    9. Xie, Zoe, 2019. "Delayed collection of unemployment insurance in recessions," European Economic Review, Elsevier, vol. 118(C), pages 274-295.
    10. Veronica Minaya & Brendan Moore & Judith Scott-Clayton, 2020. "The Effect of Job Displacement on College Enrollment: Evidence from Ohio," NBER Working Papers 27694, National Bureau of Economic Research, Inc.
    11. Engelhardt, Bryan & Rupert, Peter, 2017. "Competitive versus random search with bargaining: An empirical comparison," Labour Economics, Elsevier, vol. 48(C), pages 183-197.
    12. Robert E. Hall & Marianna Kudlyak, 2021. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Chapters, in: NBER Macroeconomics Annual 2021, volume 36, National Bureau of Economic Research, Inc.
    13. B. Boutchenik & R. Lardeux, 2020. "The Take-Up of Unemployment Benefit Extensions," Documents de Travail de l'Insee - INSEE Working Papers g2020-02, Institut National de la Statistique et des Etudes Economiques.
    14. Brendan Moore & Judith Scott-Clayton, 2019. "The Firm's Role in Displaced Workers' Earnings Losses," NBER Working Papers 26525, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    unemployment insurance; take-up; matching frictions; search;
    All these keywords.

    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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