Unemployment Insurance Generosity Research Articles

Unemployment insurance generosity and intimate partner violence

Unemployment insurance generosity and intimate partner violence

Inequality in high-cost borrowing and unemployment insurance generosity in US states during the COVID-19 pandemic.

US consumers may turn to the private market for credit when income and government benefits fall short. The most vulnerable consumers have access only to the highest-cost loans. Prior research on trade-offs of credit with government welfare support cannot distinguish between distinct forms of unsecured credit due to data limitations. Here we provide insight on credit-welfare state trade-offs vis-à-vis unemployment insurance generosity by leveraging a large sample of credit data that allow us to separate credit cards, personal loans and alternative financial services loans and to analyse heterogeneity in credit use by household income. We find that more generous state unemployment insurance benefits were associated with a lower probability of high-cost credit use during the first seven quarters of the coronavirus disease 2019 (COVID-19) pandemic. This inverse association was concentrated among consumers living in low-income households. Our results support theories that public benefits are inversely associated with the use of costly credit.

Stable Income, Stable Family

Abstract We document the effect of unemployment insurance generosity on divorce and fertility using an identification strategy that leverages state-level changes in maximum benefits over time and comparisons across workers who have been laid off and those that have not been laid off. The results indicate that higher maximum benefit levels mitigate the effects of layoffs. In particular, they mitigate increases in divorce associated with men's layoffs; increases in separations associated with women's layoffs; reductions in fertility associated with men's layoffs; and increases in fertility associated with women's layoffs.

The Effect of Extended Unemployment Insurance Generosity on Population Mental Health

This study contributes to a small but growing literature on the health effects of unemployment insurance (UI) by examining the impact of extended benefit generosity during the Great Recession on population mental health. Using data from the 2003–13 Behavioral Risk Factor Surveillance System as well as cross-state and time series variation in UI policies, we estimate that a one standard deviation (or $1,000) increase in UI generosity is associated with a 5.1 (0.5) percent improvement in self-reported mental health among the unemployed. We also provide evidence for the validity of our research design through an event study model and supplementary regressions that incorporate county or county-by-time fixed effects. However, we find no definitive evidence that UI affects general/physical health, health insurance, access to care, or health behaviors.

Weathering the storm together: Does unemployment insurance help couples avoid divorce?

This study examines whether unemployment insurance benefit generosity impacts divorce, drawing on full population administrative data and a Swiss reform that reduced unemployment insurance maximum benefit duration. We assess the effect of the reform by comparing the pre- to the post-reform change in divorce rates among unemployed individuals who were affected by the reform with the change in divorce rates among a statistically balanced group of unemployed individuals who was not affected by the reform. Difference-in-differences estimates suggest that the reform caused a 2.8 percentage point increase in divorce (a 25% increase). Effects were concentrated among low-income couples (+58%) and couples with an unemployed husband (+32%) though gender differences are attributable to men's breadwinner status. Female main breadwinners were more strongly affected (+78%) than male main breadwinners (+40%). Results confirm the 'family stress model' which posits that job search and financial stress cause marital conflict. Policymakers should consider a broad array of impacts, including divorce, when considering reductions in unemployment insurance generosity.

The impact of an unemployment insurance reform on incidence rates of hospitalisation due to alcohol-related disorders: a quasi-experimental study of heterogeneous effects across ethnic background, educational level, employment status, and sex in Sweden

BackgroundMany Western countries have scaled back social and health expenditure, including decreases in the generosity and coverage of unemployment insurance, resulting in negative effects on general health and well-being at the aggregate level. Yet, research has not sufficiently looked into heterogeneity of such effects across different subgroups of the population. In Sweden, the 2006 unemployment insurance reform, implemented on the 1st of January 2007, encompassed a drastic increase of insurance fund membership fees, reduced benefit levels, and stricter eligibility requirements. As this particularly affected already socioeconomically disadvantaged groups in society, such as foreign-born and low-educated individuals, the current study hypothesise that the reform would also have a greater impact on health outcomes in these groups.MethodsBased on register data for the total population, we utilise a quasi-experimental approach to investigate heterogeneous health effects of the reform across ethnic background, educational level, employment status, and sex. Due to behaviourally caused diseases having a relatively shorter lag time from exposure, hospitalisation due to alcohol-related disorders serves as the health outcome. A series of regression discontinuity models are used to analyse monthly incidence rates of hospitalisation due to alcohol-related disorders among individuals aged 30–60 during the study period (2001–2012), with the threshold set to the 1st of January 2007.ResultsThe results suggest that, in general, there was no adverse effect of the reform on incidence rates of hospitalisation due to alcohol-related disorders. A significant increase is nonetheless detected among the unemployed, largely driven by Swedish-born individuals with Swedish-born or foreign-born parents, low-educated individuals, and men.ConclusionsWe conclude that the Swedish 2006 unemployment insurance reform generally resulted in increasing incidence rates of hospitalisation due to alcohol-related disorders among unemployed population subgroups known to have higher levels of alcohol consumption.

Optimal unemployment insurance in a directed search model

Over recent decades, several economies have experienced changes in the level of aggregate and idiosyncratic volatility. This paper investigates the appropriate labor market policy response to such changes. We introduce unemployment benefits financed by a proportional earnings tax within a model of directed search on the job. The optimal benefit level is hump-shaped as a function of the level of idiosyncratic risk, and the welfare costs of deviating from the optimum are substantial. In contrast, while the optimal generosity of unemployment insurance—which is pro-cyclical—declines with the amount of aggregate risk, the welfare costs of deviating are small.

Should We Insure Workers or Jobs During Recessions?

What is the most efficient way to respond to recessions in the labor market? To this question, policymakers on the two sides of the pond gave diametrically opposed answers during the COVID-19 crisis. In the United States, the focus was on insuring workers by increasing the generosity of unemployment insurance. In Europe, instead, policies were concentrated on saving jobs, with the expansion of short-time work programs to subsidize labor hoarding. Who got it right? In this article, we show that far from being substitutes, unemployment insurance and short-time work exhibit strong complementarities. They provide insurance to different types of workers and against different types of shocks. Short-time work can be effective at reducing socially costly layoffs against large temporary shocks, but it is less effective against more persistent shocks that require reallocation across firms and sectors. We conclude that short-time work is an important addition to the labor market policy-toolkit during recessions, to be used alongside unemployment insurance.

The Social Externality of Health Insurance: Evidence from Unemployment Insurance Generosity and Children Mortality

This paper explores the potential health externality of an important social program in the US, the Unemployment Insurance (UI) program. Exploiting the variations of UI benefits across states and over the years 1970-2000 and applying a difference-in-difference-in-difference identification strategy, we find that UI benefits have the potential to reduce child mortality rates. Among mothers fully eligible for the UI benefits compared to non-eligible mothers, a $1,000 increase in maximum benefit is associated with 5.3 and 0.24 fewer deaths per 1,000 infants and toddlers, respectively. The effects are robust across various specifications, subsamples, and alternative measures of UI benefits. The results do not appear to be driven by the compositional changes in states’ welfare programs or the endogenous economic indicators that cause the changes in UI laws. The potential mechanisms of impact are improved birth outcomes and better prenatal care during pregnancy. Some policy implications are discussed.

Unemployment Insurance Generosity and Aggregate Employment

This paper examines the impact of unemployment insurance (UI) on aggregate employment by exploiting cross-state variation in the maximum benefit duration during the Great Recession. Comparing adjacent counties located in neighboring states, there is no statistically significant impact of increasing UI generosity on aggregate employment. Point estimates are uniformly small in magnitude, and the most precise estimates rule out employment-to-population ratio reductions in excess of 0.35 percentage points from the UI extension. The results contrast with the negative effects implied by most micro-level labor supply studies and are consistent with both job rationing and aggregate demand channels. (JEL E24, E32, J22, J23, J65)

Unemployment Insurance in Macroeconomic Stabilization

Does the generosity of unemployment insurance (UI) have a role to play in macroeconomic stabilization? When inefficient fluctuations arise from nominal rigidities and constraints on monetary policy, I demonstrate that it does, owing to the interaction between UI and aggregate demand. From a positive perspective, a marginal increase in UI generosity affects output and employment through a redistribution effect on aggregate demand. From a normative perspective, two forces determine optimal generosity beyond the classic trade-off between insurance and incentives: an aggregate demand externality and an effect of low aggregate demand on the social cost of disincentives. The aggregate demand externality summarizes the welfare impact of the redistribution effect when the economy is slack; both are governed by the difference in marginal propensities to consume between the unemployed and employed. Quantitatively, a calibrated model with search frictions, incomplete markets, and a binding zero lower bound suggests that the 2008–13 UI benefit extensions in the U.S. had important stabilization effects through these channels. Compared to counterfactual benefit durations capped at 9 months in the calibrated model, the extensions to 22 months prevent a 2-5 percentage point rise in the unemployment rate and generate a strict Pareto improvement.

Gross Labor Market Flows, Self-Employment, and Unemployment Insurance

In the data, entrepreneurship contributes to the micro and macro-level patterns of gross labor market flows and the selection into that occupation is highly responsive to labor market policy changes. Using an occupational choice model of employment, unemployment, and entrepreneurship, we show that search frictions over all three occupations and a technology letting entrepreneurs produce with their own labor, business capital, or both, are pivotal in rationalizing observed aggregate gross flows and behaviors along the wealth and ability dimensions. The responsiveness of our model flows to variations in unemployment insurance generosity is consistent with US empirical estimates. Changes in the relative riskiness of occupations drive this responsiveness. In turn, beyond the direct effects on unemployment, large reallocations between entrepreneurship and employment appear, shaping aggregate occupational shares. Using our framework, we show that the successive unemployment insurance extensions during the Great Recession have decreased the entrepreneurship rate by 0.4pp.

The Effect of Unemployment Insurance Benefits on (Self-)Employment: Two Sides of the Same Coin?

Although a meaningful percentage of firms are created out of unemployment and current active labor market policies in Europe often subsidize unemployed individuals to start their own businesses, little is known about the role of unemployment insurance (UI) generosity for selfemployment. By using Spanish administrative data including previously unavailable information on self-employment, we exploit a reform-driven exogenous cut in UI benefits to identify its causal effect on general employment and decompose it into the effects on self-employment and re-employment. Exploiting a discontinuity in the UI benefit schedule which changed as a result of the 2012 Spanish labor market reform, we estimate the causal reform effects on the extensive margin of (self-)employment and on unemployment duration. We find heterogeneous effects on the extensive margin: while the job-finding rate increases, the startup rate decreases. Over different time horizons, the negative effect on self-employment (35-50%) outweighs the positive effect on employment (5-33%). Our UI benefit duration elasticity estimates indicate that reduced UI benefits extend unemployment duration for individuals transitioning into self-employment but shorten unemployment for individuals finding re-employment. Due to the reform's unintended consequences for self-employment, its general employment effect is much smaller than claimed by analyses that focus only on employment.

Labor market trends and unemployment insurance generosity during the pandemic

We test whether changes in unemployment insurance (UI) benefit generosity under the CARES Act in the US are associated with differential employment outcomes under the distinct conditions of the pandemic. While we observe a negative association between UI generosity and employment, we show that the relative employment gap arises before the Act was instituted, decreases in magnitude when the augmented benefits were in place, and does not change when the benefits expansion expires.

Unemployment Insurance Generosity and Crime

Previous studies show that unemployment has a positive effect on crime rates; however, unemployment insurance (UI) benefits could mitigate these effects. Using county-level unemployment and crime data and taking advantage of the UI law changes across states and over time (1990-2016), we provide new evidence that the UI benefits act as a buffer against local labor market shocks. A one-standard-deviation increase in benefits is associated with 2.4% and 1.9% lower property and violent crime rates for a county at average unemployment.

Unemployment Insurance during a Pandemic

The CARES Act implemented in response to the COVID-19 crisis dramatically increases the generosity of unemployment insurance (UI) benefits, triggering concerns about its substantial impact on unemployment. This paper combines a labor market search-matching model with the SIR-type infection dynamics to study the effects of CARES UI on both unemployment and infection. More generous UI policies create work disincentives and lead to higher unemployment, but they also reduce infection and save lives. Economic shutdown policies further amplify these effects of UI policies. Quantitatively, the CARES UI policies raise unemployment by an average of 3.7 percentage points over April to December 2020 but also reduce cumulative death by 4.7 percent. Eligibility expansion and the extra $600 increase in benefit level account for more than 90 percent of the total effects, while the 13-week benefit duration extension plays a much smaller role. Overall, UI policies improve the welfare of workers and reduce the welfare of nonworkers, both young and old.

Unemployment insurance generosity and crime

ABSTRACT Previous studies show that unemployment has a positive effect on crime rates; however, unemployment insurance (UI) benefits could mitigate these effects. Using county-level unemployment and crime data and taking advantage of the UI law changes across states and over time (1990–2016), we provide new evidence that the UI benefits act as a buffer against local labour market shocks. A one-standard-deviation increase in benefits is associated with 2.4% and 1.9% lower property and violent crime rates for a county at average unemployment.

The equilibrium impact of unemployment insurance on unemployment: Evidence from a non-linear policy rule

We estimate the “macro effect” of an increase in the generosity of unemployment insurance (UI) on unemployment in Sweden using regional data. The national UI benefit formula features a benefit ceiling and a statutory replacement rate, and does not take regional wage differentials into account. Changes in the national rules are useful for identification, since a change in the benefit ceiling, for example, has a greater impact on UI generosity in a high-wage region than in a low-wage region because a greater fraction of the workforce will be affected by the benefit ceiling in the high-wage region. We implement this identification strategy using data for the Swedish municipalities over the time period 1992–2014. Our estimates suggest that the macro elasticity of an increase in UI on unemployment is around 3. This is twice as large as the corresponding “micro elasticity”, which we estimate to 1.4–1.5 using data from the same time period.

How strong is my safety net? Perceived unemployment insurance generosity and implications for job search, mental health, and reemployment.

While social science has substantially documented the individual experience of unemployment, less is known about the role of contextual variables. One contextual factor that is important for unemployed job seekers is the unemployment insurance (UI) that they receive. This study examines the relationships between job seeker perceptions of UI generosity and mental health during unemployment, reemployment speed, and reemployment quality. Drawing upon psychological construal theory, we conceptualize UI generosity as creating psychological distance from the reemployment goal, generating consequences for the job search, mental health, and reemployment. We tested our hypotheses with a four-wave survey design of job seekers looking for work in 3 different countries (United States, Germany, and the Netherlands). Perceived UI generosity was associated with slower reemployment speed, via reduced time pressure, job search priority, and job search metacognition. Perceived UI generosity was related to higher mental health, via reduced time pressure and financial strain. Finally, perceived UI generosity was related to increased reemployment quality, both directly as well as indirectly through lower time pressure and financial strain, and subsequent higher mental health. Our findings provide previously unavailable empirical insight into the mechanisms explaining the positive and negative outcomes of UI generosity. (PsycINFO Database Record (c) 2020 APA, all rights reserved).

The Effect of Unemployment Insurance Benefits on (Self-) Employment: Two Sides of the Same Coin?

Although a relevant share of firms is created out of unemployment and current active labor market policies in Europe often subsidize unemployed individuals to start their own businesses, little is known about the role of unemployment insurance (UI) generosity for self-employment. By using Spanish administrative data including so far inaccessible information on self-employment, we exploit a reform-driven exogenous cut in UI benefits to identify its causal effect on general employment and decompose it into the effects on self-employment and re-employment. Exploiting a discontinuity in the UI benefit schedule which changed as a result of the 2012 Spanish labor market reform, we estimate the causal reform effects on the extensive margin of (self-)employment and on unemployment duration. We find heterogeneous effects on the extensive margin: while the job-finding rate increases, the startup rate decreases. Over different time horizons, the negative effect on self- employment (35-50%) outweighs the positive effect on employment (5-33%). Therefore, omitting self-employment as a counterfactual outcome might lead to overestimate general employment effects. Our UI benefit duration elasticity estimates indicate that reduced UI benefits extend unemployment duration for individuals transitioning into self-employment but shorten unemployment for individuals finding re-employment. These results might be relevant for the (optimal) design of UI systems.