Ying H. Chao, Benjamin S. Griffy, and David Wiczer
Working Paper 2025-6
July 2025
Full text
Abstract:
In the United States, workers whose past earnings were below a threshold are generally ineligible for unemployment insurance (UI), creating a discontinuous jump in the value of being unemployed. Using a regression discontinuity design with administrative panel data, we estimate a sizable local effect from UI eligibility on earnings in the next employer, around 10 percent per quarter. This evidence, however, understates UI’s causal effect because of endogenous non-compliance. It also does not distinguish between underlying reasons for higher re-employment earnings, a higher share of production, or more productive matches. These are addressed through a quantitative model. The underlying causal effect is 50 percent higher than the empirical estimates, and nearly all of the effect comes from workers getting a larger share.
JEL classification: E24, E30, J62, J63, J64
Key words: unemployment insurance, directed search, earnings
https://doi.org/10.29338/wp2025-06
The authors thank Serdar Birinci, Eliza Forsythe, David Fuller, Fatih Karahan, Fabian Lange, Rasmus Lentz, Kurt Mitman, Daphné Skandalis, and seminar participants at NBER SI 2025, Society of Economics Dynamics 2022, the COCONUTS Virtual Search and Matching Workshop, Cambridge University, DC SaM, KC Fed, Philadelphia Fed, St Louis Fed, Rutgers University, and UCSB. They also thank Aryan Arora, Edwin Leandry, and Santiago Martinez for excellent research assistance. This research uses data from the US Census Bureau's Longitudinal Employer Household Dynamics Program, which was partially supported by the following National Science Foundation grants: SES-9978093, SES-0339191, and ITR-0427889; National Institute on Aging grant AG018854; and grants from the Alfred P. Sloan Foundation. The Census Bureau has ensured appropriate access and use of confidential data and has reviewed these results for disclosure avoidance protection (Federal Statistical Research Data Center Project Number 1819: CBDRB-FY21-P1819-R8907, CBDRB-FY21-P1819-R9064, and CBDRB-FY25-P1819-11937). Any opinions and conclusions expressed herein are those of the authors and do not represent the views of the US Census Bureau, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Ying H. Chao, Department of Economics, the University of North Carolina, 200 East Cameron Avenue, Chapel Hill, NC 27514, chaoying@unc.edu; Benjamin S. Griffy, Department of Economics, SUNY Albany, Room BA110, 1400 Washington Avenue, Albany, NY 12222, bgriffy@albany.edu; or David Wiczer, Research Division, Federal Reserve of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309, david.wiczer@atl.frb.org.
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