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Delayed Collection of Unemployment Insurance during Recessions

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  • Xie, Zoe

Abstract

Contrary to assumptions in the unemployment insurance (UI) literature, this paper argues that unemployed workers do not always lose uncollected UI benefits when they start a new job. Instead, they may postpone the collection of leftover benefits to future unemployment spells. Further, using cross-time and cross-state variations in UI policies, the paper finds empirical evidence that allowing unemployed workers to delay the collection of benefits increases their incentives to find a job during recessions when wages are low, job separation rates are high, and UI benefits are extended. I quantify the effects of the policy of allowing delayed collection of benefits on aggregate unemployment by introducing endogenous search effort, benefit eligibility, and wage indexed benefits into a standard search-and-matching framework. The model demonstrates how the policy increases the future value of employment even though more generous UI benefits in general reduce the net value of employment. Using a calibrated model,I find that allowing delayed benefit collection raises the proportion of unemployed workers receiving benefits and reduces the unemployment rate during 2009–2012.

Suggested Citation

  • Xie, Zoe, 2015. "Delayed Collection of Unemployment Insurance during Recessions," MPRA Paper 76564, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:76564
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    File URL: https://mpra.ub.uni-muenchen.de/76564/1/MPRA_paper_76564.pdf
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    References listed on IDEAS

    as
    1. Krueger, Alan B. & Mueller, Andreas, 2010. "Job search and unemployment insurance: New evidence from time use data," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 298-307, April.
    2. McCall, Brian P, 1996. "Unemployment Insurance Rules, Joblessness, and Part-Time Work," Econometrica, Econometric Society, vol. 64(3), pages 647-682, May.
    3. Philip Jung & Keith Kuester, 2015. "Optimal Labor-Market Policy in Recessions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(2), pages 124-156, April.
    4. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    5. Mitman, Kurt & Rabinovich, Stanislav, 2015. "Optimal unemployment insurance in an equilibrium business-cycle model," Journal of Monetary Economics, Elsevier, vol. 71(C), pages 99-118.
    6. Miquel Faig & Min Zhang, 2012. "Labor Market Cycles, Unemployment Insurance Eligibility, and Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 41-56, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Unemployment insurance; Unemployment; Short-term employment;

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • 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

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