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

Author

Listed:
  • Stéphane Auray

    (CREST-ENSAI)

  • David L. Fuller

    (Concordia University)

  • damba Lkhagvasuren

    (Concordia University)

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. 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

Suggested Citation

  • Stéphane Auray & David L. Fuller & damba Lkhagvasuren, 2013. "Unemployment Insurance Take-up Rate"s in an Equilibrium Search Model," Working Papers 2013-12, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2013-12
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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

    Citations

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    Cited by:

    1. Kyle F Herkenhoff, 2019. "The Impact of Consumer Credit Access on Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(6), pages 2605-2642.
    2. Serdar Birinci & Kurt Gerrard See, 2018. "How Should Unemployment Insurance vary over the Business Cycle?," 2018 Meeting Papers 69, Society for Economic Dynamics.
    3. Minaya, Veronica & Moore, Brendan & Scott-Clayton, Judith, 2023. "The effect of job displacement on public college enrollment: Evidence from Ohio," Economics of Education Review, Elsevier, vol. 92(C).
    4. Kawano, Laura & LaLumia, Sara & Ramnath, Shanthi & Stevens, Michael, 2025. "Who picks up the slack? Understanding spousal responses to unemployment spells," Labour Economics, Elsevier, vol. 96(C).
    5. Xie, Zoe, 2019. "Delayed collection of unemployment insurance in recessions," European Economic Review, Elsevier, vol. 118(C), pages 274-295.
    6. 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.
    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. 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.
    9. Robert E. Hall & Marianna Kudlyak, 2022. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Macroeconomics Annual, University of Chicago Press, vol. 36(1), pages 1-55.
    10. 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.
    11. 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.
    12. 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.
    13. Marta Lachowska & Isaac Sorkin & Stephen A. Woodbury, 2022. "Firms and Unemployment Insurance Take-up," NBER Working Papers 30266, National Bureau of Economic Research, Inc.
    14. Andre Luduvice & Anaya Truss-Williams, 2024. "How Insured Are Workers Against Unemployment? Unemployment Insurance and the Distribution of Liquid Wealth," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2024(16), pages 1-8, October.
    15. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2023. "Unemployment insurance, recalls, and experience rating," Journal of Macroeconomics, Elsevier, vol. 75(C).
    16. Engelhardt, Bryan & Rupert, Peter, 2017. "Competitive versus random search with bargaining: An empirical comparison," Labour Economics, Elsevier, vol. 48(C), pages 183-197.
    17. Laura Salisbury, 2024. "Union Army Widows and the Historical Take-Up of Social Benefits," NBER Chapters, in: The Economic History of American Inequality: New Evidence and Perspectives, pages 123-164, National Bureau of Economic Research, Inc.
    18. W. Similan Rujiwattanapong, 2022. "Unemployment Insurance and Labour Productivity over the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 196-223, October.
    19. Griffy, Benjamin & Masters, Adrian & You, Kai, 2025. "Unemployment insurance and job polarization," Labour Economics, Elsevier, vol. 93(C).
    20. Rujiwattanapong, W. Similan, 2025. "Unemployment dynamics and endogenous unemployment insurance extensions," European Economic Review, Elsevier, vol. 178(C).
    21. 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.
    22. Chao, Ying H., 2025. "A quantitative analysis of relaxing UI eligibility requirements," Labour Economics, Elsevier, vol. 94(C).
    23. 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.
    24. Francesco Spadafora, 2022. "Don’t let me down: unemployment insurance in the United States," Questioni di Economia e Finanza (Occasional Papers) 673, Bank of Italy, Economic Research and International Relations Area.
    25. Mitman, Kurt & Rabinovich, Stanislav, 2024. "Do unemployment benefit extensions explain the emergence of jobless recoveries?," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).

    More about this item

    Keywords

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    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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