The Effect of Wage Insurance on Labor Supply: A Test for Income Effects

Henry Hyatt

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: Studies of moral hazard in wage insurance programs such as Unemployment Insurance (UI) or Workers Compensation (WC) have demonstrated that higher benefits discourage work, emphasizing the price distortion inherent in benefit provision. Utilizing administrative data linking WC claim records to wage records from a UI payroll tax database, I find that the effect of WC benefits on the duration of benefit receipt cannot fully account for the effect of these benefits on post-injury unemployment. This indicates that a significant fraction of the effect of WC benefits on employment is due to an income effect rather than a price distortion.

Pages: 36 pages
Date: 2009-10
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https://www2.census.gov/ces/wp/2009/CES-WP-09-37.pdf First version, 2009 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:09-37

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