Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data
- (pp. 266-93)
(Complimentary)
Abstract
To finance unemployment insurance, states raise payroll tax rates on employers who engage in layoffs. Tax rates are, therefore, highest for firms after downturns, potentially hampering labor-market recovery. Using full-population, administrative records from Florida, I estimate the effect of these tax increases on firm behavior leveraging a regression kink design in the tax schedule. Tax hikes reduce hiring and employment substantially, with no effect on layoffs or wages. The results imply unanticipated costs of the financing regime which reduce the optimal benefit by a quarter and account for 12 percent of the unemployment in the wake of the Great Recession.Citation
Johnston, Andrew C. 2021. "Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data." American Economic Journal: Economic Policy, 13 (1): 266-93. DOI: 10.1257/pol.20190031Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H32 Fiscal Policies and Behavior of Economic Agents: Firm
- H71 State and Local Taxation, Subsidies, and Revenue
- J23 Labor Demand
- J65 Unemployment Insurance; Severance Pay; Plant Closings
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