Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data

Andrew Johnston

American Economic Journal: Economic Policy, 2021, vol. 13, issue 1, 266-93

Abstract: To finance unemployment insurance, states raise payroll tax rates on employers who engage in layoffs. Tax rates are, therefore, highest for firms after downturns, potentially hampering labor-market recovery. Using full-population, administrative records from Florida, I estimate the effect of these tax increases on firm behavior leveraging a regression kink design in the tax schedule. Tax hikes reduce hiring and employment substantially, with no effect on layoffs or wages. The results imply unanticipated costs of the financing regime which reduce the optimal benefit by a quarter and account for 12 percent of the unemployment in the wake of the Great Recession.

JEL-codes: D22 E24 H25 H32 H71 J23 J65 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (16)

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Working Paper: Unemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data (2020)
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DOI: 10.1257/pol.20190031

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