Delayed Collection of Unemployment Insurance in Recessions
Working Paper 2019-14
Using variations in unemployment insurance policies over time and across U.S. states, this paper provides evidence that allowing unemployed workers to delay the collection of benefits increases their job-finding rate. In a model with discrete job take-up decisions, benefit entitlement, wage-indexed benefits, and heterogeneous job types, I demonstrate that the policy can increase an unemployed worker's willingness to work, even though more benefits in general reduce the relative value of employment. In a calibrated quantitative model, I find that allowing delayed benefit collection increases the overall job finding rates and may lower the unemployment rate both in a steady state stationary economy and over a transition path during 2008–12.
JEL classification: E24, J65
Key words: health, frailty index, life cycle profiles
First version: November 2015. This version: June 2019. The author would like to thank Ashley Edwards and Lewis Warren at the U.S. Census Bureau for answering questions about the SIPP 2008 panel. Suggestions from the editor, the associate editor, and two anonymous referees are greatly appreciated. The initial draft of this paper was completed with the financial support of the University of Minnesota Doctoral Dissertation Fellowship and benefited from discussions with Víctor Ríos-Rull, Jonathan Heathcote, Sam Schuhlhofer-Wohl, Si Guo, and Naoki Takayama. Deepmala Pokhriyal provided excellent research assistance. The views expressed here are those of the author and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the author’s responsibility.
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