Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity
American Economic Journal: Macroeconomics
vol. 15,
no. 3, July 2023
(pp. 388-430)
Abstract
We document considerable scope of heterogeneity within the unemployed, especially when they are divided along eligibility for and receipt of unemployment insurance (UI). We study the implications of this heterogeneity on UI's insurance-incentive trade-off using a heterogeneous-agent job search model capable of matching the wealth and income differences that distinguish UI recipients from nonrecipients. Insurance benefits are larger for UI recipients who are predominantly wealth poor. Meanwhile, incentive costs are nonmonotonic in wealth because the poorest individuals, who value employment, exhibit weak responses. Differential elasticities imply that accounting for the composition of recipients is material to the evaluation of UI's insurance-incentive trade-off.Citation
Birinci, Serdar, and Kurt See. 2023. "Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity." American Economic Journal: Macroeconomics, 15 (3): 388-430. DOI: 10.1257/mac.20200057Additional Materials
JEL Classification
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings
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