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The Effects of Unemployment Insurance Taxes and Benefits on Layoffs Using Firm and Individual Data

  • Patricia M. Anderson
  • Bruce D. Meyer

We examine the effects of unemployment insurance (UI) experience rating on layoffs using high quality firm and individual data. Our preferred estimates imply that incomplete experience rating is responsible for over twenty percent of temporary layoffs. The results are more mixed regarding the predictions of the alternative models of UI as a firm adjustment cost or a component of the worker compensation package. While the evidence favors the adjustment cost model, some of the predictions of each of these models are rejected by at least one of our specifications. Using our new data, we also confirm the correlation between experience rating proxies and layoffs found in past studies. However, the differences between these proxies and state average firm tax costs and the anomalous instrumental variables estimates that we find suggest that it may be inappropriate to causally interpret this correlation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4960.

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Date of creation: Dec 1994
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Handle: RePEc:nbr:nberwo:4960
Note: LS PE
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  1. Feldstein, Martin S, 1978. "The Effect of Unemployment Insurance on Temporary Layoff Unemployment," American Economic Review, American Economic Association, vol. 68(5), pages 834-46, December.
  2. David Card & Phillip B. Levine, 1992. "Unemployment Insurance Taxes and the Cyclical and Seasonal Properties of Unemployment," NBER Working Papers 4030, National Bureau of Economic Research, Inc.
  3. Robert S. Smith, 1979. "Compensating wage differentials and public policy: A review," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 32(3), pages 339-362, April.
  4. John M. Abowd & Orley C. Ashenfelter, 1981. "Anticipated Unemployment, Temporary Layoffs, and Compensating Wage Differentials," NBER Chapters, in: Studies in Labor Markets, pages 141-170 National Bureau of Economic Research, Inc.
  5. Brown, Charles, 1980. "Equalizing Differences in the Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 94(1), pages 113-34, February.
  6. Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1015-42, November.
  7. Adams, James D., 1986. "Equilibrium taxation and experience rating in a federal system of unemployment insurance," Journal of Public Economics, Elsevier, vol. 29(1), pages 51-77, February.
  8. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  9. McCall, Brian P, 1995. "The Impact of Unemployment Insurance Benefit Levels on Recipiency," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(2), pages 189-98, April.
  10. Murphy, Kevin M & Topel, Robert H, 1997. "Unemployment and Nonemployment," American Economic Review, American Economic Association, vol. 87(2), pages 295-300, May.
  11. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 225-38, January.
  12. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October.
  13. Topel, Robert H, 1984. "Experience Rating of Unemployment Insurance and the Incidence of Unemployment," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 61-90, April.
  14. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  15. Topel, Robert H, 1984. "Equilibrium Earnings, Turnover, and Unemployment: New Evidence," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 500-522, October.
  16. Patricia M. Anderson & Bruce D. Meyer, 1994. "Unemployment Insurance Benefits and Takeup Rates," NBER Working Papers 4787, National Bureau of Economic Research, Inc.
  17. Blank, Rebecca M & Card, David E, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1157-89, November.
  18. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-59, September.
  19. Baily, Martin Neil, 1977. "On the Theory of Layoffs and Unemployment," Econometrica, Econometric Society, vol. 45(5), pages 1043-63, July.
  20. Bruce D. Meyer, 1989. "A Quasi-Experimental Approach to the Effects of Unemployment Insurance," NBER Working Papers 3159, National Bureau of Economic Research, Inc.
  21. Anderson, Patricia M & Meyer, Bruce D, 1993. "Unemployment Insurance in the United States: Layoff Incentives and Cross Subsidies," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages S70-95, January.
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