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Why Are Unemployment Insurance Claims So Low?

Author

Listed:
  • Christopher J. O'Leary

    (W.E. Upjohn Institute for Employment Research)

  • Kenneth J. Kline

    (W.E. Upjohn Institute for Employment Research)

  • Thomas A. Stengle

    (Retired)

  • Stephen A. Wandner

    (National Academy of Social Insurance)

Abstract

In this paper, we examine the reasons why unemployment insurance (UI) claims have declined so dramatically over the past three decades. The fall in the UI claims rate is concerning because it suggests a reduced countercyclical effectiveness of the UI program. Additionally, weekly initial UI claims are regarded as an important leading indicator of aggregate economic activity, so their meaning has changed. We use a Oaxaca (1973) decomposition approach to identify the main factors for the decline in claims. The procedure suggests what the level of claims would have been later in the period, had values of variables or parameters of the system been at levels observed earlier in the period. Our analysis of state-year data over the past three decades suggests that the decline in UI claims stems from changes in the industrial and occupational mix of employment interacting with changes in UI program features set by individual states. Employment declines in manufacturing and increases in the health-care and education workforce, along with lower potential UI duration and lower wage replacement rates, contribute to the decline in claims. This decline could be offset by federal rules for states to improve benefit access, replacement rates, and durations. Such changes could improve the relevance of UI to the labor market and help restore UI as meaningful social insurance against job loss and as an automatic stabilizer of the macroeconomy.

Suggested Citation

  • Christopher J. O'Leary & Kenneth J. Kline & Thomas A. Stengle & Stephen A. Wandner, 2023. "Why Are Unemployment Insurance Claims So Low?," Upjohn Working Papers 23-383, W.E. Upjohn Institute for Employment Research.
    • Handle: RePEc:upj:weupjo:23-383
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    References listed on IDEAS

    as
    1. Rebecca Blank & David Card, 1988. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," Working Papers 623, Princeton University, Department of Economics, Industrial Relations Section..
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    3. Rebecca M. Blank & David E. Card, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1157-1189.
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    5. Gary Burtless, 1983. "Why Is Insured Unemployment So Low?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 14(1), pages 225-254.
    6. Avraham Ebenstein & Kevin Stange, 2010. "Does inconvenience explain low take-up? Evidence from unemployment insurance," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(1), pages 111-136.
    7. Ronald L. Oaxaca & Michael R. Ransom, 1999. "Identification in Detailed Wage Decompositions," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 154-157, February.
    8. Patricia M. Anderson & Bruce D. Meyer, 1997. "Unemployment Insurance Takeup Rates and the After-Tax Value of Benefits," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 913-937.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    unemployment insurance (UI); applications for benefits; first claims; wage replacement rate; potential duration of benefits; industrial mix of employment; occupational mix of employment;
    All these keywords.

    JEL classification:

    • 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
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories

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