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Unemployment Insurance Take-up Rate"s in an Equilibrium Search Model

  • Stéphane Auray

    ()

    (CREST-ENSAI)

  • David L. Fuller

    ()

    (Concordia University)

  • damba Lkhagvasuren

    ()

    (Concordia University)

Registered author(s):

    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. It averaged 77% from 1989 - 2012 and is negatively correlated with the unemployment rate. These empirical facts are explained in an equilibrium search model where firms finance UI benefits 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. The model captures the negative correlation between the take-up and unemployment rate. If all eligible unemployed collect, benefit expenditures increase by 16% and welfare increases. Average search effort decreases, but the unemployment rate and duration decrease as vacancy creation increases

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    Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2013-12.

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    Length: 48
    Date of creation: Oct 2013
    Date of revision:
    Handle: RePEc:crs:wpaper:2013-12
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