Recalls and unemployment insurance taxes

Abstract

The US unemployment insurance (UI) system draws its funds from a payroll tax on employers. The tax rate varies directly with an employer's layoff history. There exists extensive evidence on the effect of this so-called experience rated tax on layoff decisions. However, since firms are typically liable for each dollar of regular UI benefits paid to laid off former employees, experience rating may also affect recall behaviour. This note therefore measures the effect of the UI financing system on the duration of unemployment. This article finds some evidence that higher layoff tax costs shorten the duration of recall unemployment.