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The Effect of Unemployment Insurance Eligibility in Equilibrium

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Abstract

In the United States, workers whose past earnings were below a threshold are generally ineligible for unemployment insurance (UI), creating a discontinuous jump in the value of being unemployed. Using a regression discontinuity design with administrative panel data, we estimate a sizable local effect from UI eligibility on earnings in the next employer, around 10 percent per quarter. This evidence, however, understates UI’s causal effect because of endogenous non-compliance. It also does not distinguish between underlying reasons for higher re-employment earnings, a higher share of production, or more productive matches. These are addressed through a quantitative model. The underlying causal effect is 50 percent higher than the empirical estimates, and nearly all of the effect comes from workers getting a larger share.

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  • Ying Chao & Benjamin Griffy & David Wiczer, 2025. "The Effect of Unemployment Insurance Eligibility in Equilibrium," FRB Atlanta Working Paper 2025-6, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:101516
    DOI: 10.29338/wp2025-06
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    References listed on IDEAS

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    1. Lalive, Rafael, 2008. "How do extended benefits affect unemployment duration A regression discontinuity approach," Journal of Econometrics, Elsevier, vol. 142(2), pages 785-806, February.
    2. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1511-1560.
    3. Marinescu, Ioana, 2017. "The general equilibrium impacts of unemployment insurance: Evidence from a large online job board," Journal of Public Economics, Elsevier, vol. 150(C), pages 14-29.
    4. Chao, Ying H., 2025. "A quantitative analysis of relaxing UI eligibility requirements," Labour Economics, Elsevier, vol. 94(C).
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    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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