Experience Rating as an Automatic Stabilizer

Mark Duggan, Andrew Johnston and Audrey Guo

No 30651, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Unemployment insurance taxes are experience-rated to penalize firms that dismiss workers. We examine whether experience rating acts as an automatic stabilizer in the labor market. We exploit the fact that penalties for layoffs vary by state using detailed data on state tax schedules, and we measure whether firms react less to labor-demand shocks in the presence of greater layoff penalties. The average penalty for layoffs reduces firm adjustment to negative shocks by 11 percent. The results imply experience rating has a stabilizing influence on labor markets. Experience rating saved, for instance, nearly a million jobs in the Great Recession.

JEL-codes: H25 H71 J23 J65 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-lab and nep-pbe
Note: LS PE
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Published as Experience Rating as an Automatic Stabilizer , Mark Duggan, Audrey Guo, Andrew C. Johnston. in Tax Policy and the Economy, Volume 37 , Moffitt. 2023

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