Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?

This paper presents new evidence on the reasons for the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits. Using samples of unemployed workers from the March Current Population Survey, we estimate the fraction of unemployed workers who are potentially eligible for benefits in each year and compare this to the fraction who actually receive unemployment compensation. Perhaps surprisingly, we find that the decline in the fraction of insured unemployment is due to a decline in the takeup rate for benefits. Our estimates indicate that takeup rates declined abruptly between l98O and 1982, leading to a 6 percentage point decline in the fraction of the unemployed who receive benefits. We go on to analyse the determinants of the takeup rate for unemployment benefits, using both aggregated state-level data and micro-data from the Panel Study of Income Dynamics. Changes in the regional distribution of unemployment account for roughly one-half of the decline in average takeup rates. The remainder of the change is largely unexplained.