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Optimal Unemployment Insurance Requirements

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Abstract

In the US, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to stay longer in unemployment because low-paying jobs are not covered by UI. Since it mitigates moral hazard, the optimal UI design has a high monetary requirement.

Suggested Citation

  • Gustavo de Souza & André Luduvice, 2022. "Optimal Unemployment Insurance Requirements," Working Papers 22-10R, Federal Reserve Bank of Cleveland, revised 06 Mar 2023.
    • Handle: RePEc:fip:fedcwq:94057
    DOI: 10.26509/frbc-wp-202210r
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    Cited by:

    1. Griffy, Benjamin & Rabinovich, Stanislav, 2023. "Worker selectivity and fiscal externalities from unemployment insurance," European Economic Review, Elsevier, vol. 156(C).
    2. Griffy, Benjamin & Masters, Adrian & You, Kai, 2025. "Unemployment insurance and job polarization," Labour Economics, Elsevier, vol. 93(C).

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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
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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