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Unemployment Insurance Take-up Rates in an Equilibrium Search Model

Author

Listed:
  • Stéphane Auray

    (CREST; ENSAI ; ULCO)

  • David L. Fuller

    (University of Wisconsin-Oshkosh)

  • Damba Lkhagvasuren

    (Concordia University; CIREQ)

Abstract

From 1989-2012; on average 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. In a search model with matching frictions; private information associated with the UI non-collectors implies the market equilibrium is not Pareto optimal. The cause of the Pareto inefeciency is characterized along with the key features of collector vs. non-collector outcomes. Non-collectors transition to employment at a faster rate and a lower wage relative to the Pareto optimal arrival rates and wages. Quantitatively; this implies 1:71% welfare loss in consumption equivalent terms for the average worker; with a 3:85% loss conditional on non-collection. With an endogenous take-up rate; the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI benefit level; relative to the standard model with a 100% take-up rate.

Suggested Citation

  • Stéphane Auray & David L. Fuller & Damba Lkhagvasuren, 2018. "Unemployment Insurance Take-up Rates in an Equilibrium Search Model," Working Papers 2018-14, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2018-14
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    References listed 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

    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. 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.
    3. Serdar Birinci & Kurt Gerrard See, 2018. "How Should Unemployment Insurance vary over the Business Cycle?," 2018 Meeting Papers 69, Society for Economic Dynamics.
    4. 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).
    5. 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.
    6. Xie, Zoe, 2019. "Delayed collection of unemployment insurance in recessions," European Economic Review, Elsevier, vol. 118(C), pages 274-295.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. Albertini, Julien & Fairise, Xavier & Terriau, Anthony, 2023. "Unemployment insurance, recalls, and experience rating," Journal of Macroeconomics, Elsevier, vol. 75(C).
    13. 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.
    14. 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.
    15. Marta Lachowska & Isaac Sorkin & Stephen A. Woodbury, 2022. "Firms and Unemployment Insurance Take-up," NBER Working Papers 30266, National Bureau of Economic Research, Inc.
    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, National Bureau of Economic Research, Inc.
    18. 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.
    19. 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.
    20. 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.

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    More about this item

    Keywords

    Unemployment insurance; take-up; calibration; 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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