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The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation

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  • Johannes F. Schmieder
  • Till von Wachter

Abstract

The Great Recession has renewed interest in Unemployment Insurance (UI) programs around the world. At the same time, there have been important advances in both theory and measurement of UI. In this paper, we first use the theory to present a unified treatment of the welfare effects of UI benefit levels and durations and derive convenient expressions of the disincentive effect of UI. We then discuss recent estimates of the effect of UI benefit levels and durations on labor supply based, to a large extent, on high-quality research designs and administrative data. We relate these estimates directly to the sufficient statistics identified by the model. We also discuss several active and open areas of research on UI. These include the effect of UI on aggregate labor market outcomes, the effect of UI on job outcomes, the long-term effects of UI, the effects of UI under non-standard behavioral assumptions, and the interactions of UI with other programs. While our review of the new experimental estimates confirms the range of negative labor supply effects of the previous literature, we show based on the model that these estimates are imperfect proxies for the actual disincentive effects. We also isolate several important areas in need for additional research, including estimates of the social value of UI as well as the effects of UI in less-developed countries.

Suggested Citation

  • Johannes F. Schmieder & Till von Wachter, 2016. "The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation," NBER Working Papers 22564, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22564
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    References listed on IDEAS

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    1. Camille Landais, 2015. "Assessing the Welfare Effects of Unemployment Benefits Using the Regression Kink Design," American Economic Journal: Economic Policy, American Economic Association, vol. 7(4), pages 243-278, November.
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    1. repec:eee:labeco:v:53:y:2018:i:c:p:1-14 is not listed on IDEAS
    2. Camille Landais & Arash Nekoei & Peter Nilsson & David Seim & Johannes Spinnewijn, 2017. "Risk-based Selection in Unemployment Insurance: Evidence and Implications," STICERD - Public Economics Programme Discussion Papers 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    3. Hartung, Benjamin & Jung, Philip & Kuhn, Moritz, 2018. "What Hides behind the German Labor Market Miracle? Unemployment Insurance Reforms and Labor Market Dynamics," IZA Discussion Papers 12001, Institute of Labor Economics (IZA).
    4. Mesén Vargas, Juliana & Van der Linden, Bruno, 2017. "Is There Always a Trade-off between Insurance and Incentives? The Case of Unemployment with Subsistence Constraints," IZA Discussion Papers 11034, Institute of Labor Economics (IZA).
    5. Sarah Bana & Kelly Bedard & Maya Rossin-Slater, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," NBER Working Papers 24438, National Bureau of Economic Research, Inc.
    6. Y. Saks, 2016. "Socio-economic transitions on the labour market : a European benchmarking exercise," Economic Review, National Bank of Belgium, issue iii, pages 41-58, December.
    7. Le Barbanchon, Thomas & Rathelot, Roland & Roulet, Alexandra, 2019. "Unemployment insurance and reservation wages: Evidence from administrative data," Journal of Public Economics, Elsevier, vol. 171(C), pages 1-17.
    8. Andrea Albanese & Corinna Ghirelli & Matteo Picchio, 2019. "Timed To Say Goodbye: Does Unemployment Benefit Eligibility Affect Worker Layoffs?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 19/960, Ghent University, Faculty of Economics and Business Administration.
    9. Petrunyk, Inna & Pfeifer, Christian, 2018. "Shortening the Potential Duration of Unemployment Benefits and Labor Market Outcomes: Evidence from a Natural Experiment in Germany," IZA Discussion Papers 11300, Institute of Labor Economics (IZA).
    10. repec:bla:labour:v:31:y:2017:i:4:p:337-368 is not listed on IDEAS

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • 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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