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Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance

Author

Listed:
  • Lee, David S.

    (Princeton University)

  • Leung, Pauline

    (Cornell University)

  • O'Leary, Christopher J.

    (Upjohn Institute for Employment Research)

  • Pei, Zhuan

    (Cornell University)

  • Quach, Simon

    (Princeton University)

Abstract

Central to the welfare analysis of income transfer programs is the deadweight loss associated with possible reforms. To aid analytical tractability, its measurement typically requires specifying a simplified model of behavior. We employ a complementary "decomposition" approach that compares the behavioral and mechanical components of a policy's total impact on the government budget to study the deadweight loss of two unemployment insurance policies. Experimental and quasi-experimental estimates using state administrative data show that increasing the weekly benefit is more efficient (with a fiscal externality of 53 cents per dollar of mechanical transferred income) than reducing the program's implicit earnings tax.

Suggested Citation

  • Lee, David S. & Leung, Pauline & O'Leary, Christopher J. & Pei, Zhuan & Quach, Simon, 2019. "Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance," IZA Discussion Papers 12154, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12154
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    References listed on IDEAS

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    Cited by:

    1. Andreas Haller & Stefan Staubli & Josef Zweimüller, 2024. "Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?," Econometrica, Econometric Society, vol. 92(1), pages 79-110, January.
    2. Tomi Kyyrä & Hanna Pesola, 2020. "The Effects of UI Benefits on Unemployment and Subsequent Outcomes: Evidence from a Kinked Benefit Rule," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(5), pages 1135-1160, October.
    3. Kalin, Salla & Kyyrä, Tomi & Matikka, Tuomas, 2023. "Combining Part-time Work and Social Benefits: Empirical Evidence from Finland," Working Papers 159, VATT Institute for Economic Research.
    4. Martin González-Rozada & Hernan Ruffo, 2022. "The welfare effects of unemployment insurance in Argentina. New estimates using changes in the schedule of transfers," Department of Economics Working Papers 2022_01, Universidad Torcuato Di Tella.
    5. Pauline Leung & Zhuan Pei,, 2020. "Further Education During Unemployment," Working Papers 642, Princeton University, Department of Economics, Industrial Relations Section..
    6. Susanne Ek Spector, 2022. "Should unemployment insurance cover partial unemployment?," IZA World of Labor, Institute of Labor Economics (IZA), pages 199-199, June.
    7. Hélène Benghalem & Pierre Cahuc & Pierre Villedieu, 2022. "The Lock-in Effects of Part-Time Unemployment Benefits," Working Papers hal-03881625, HAL.
    8. Tito Boeri & Pierre Cahuc, 2022. "Labor Market Insurance Policies in the XXI Century," SciencePo Working papers Main hal-03878719, HAL.
    9. Hélène Benghalem & Pierre Cahuc & Pierre Villedieu, 2022. "The Lock-in Effects of Part-Time Unemployment Benefits," SciencePo Working papers Main hal-03881625, HAL.

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    More about this item

    Keywords

    regression kink design; unemployment insurance; partial unemployment insurance; optimal unemployment insurance; sufficient statistics; deadweight loss; decomposition; behavioral and mechanical effects; fiscal externality;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • 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
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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