Unemployment insurance, recalls, and experience rating

Julien Albertini, Xavier Fairise and Anthony Terriau

Journal of Macroeconomics, 2023, vol. 75, issue C

Abstract: In the United States, almost half of the workers who separated from their jobs ended their unemployment spell by returning to work for their last employer. In this study, we explore the impact of the experience rating (ER) system on recalls. In states using reserve ratio ER, and for a firm that is not at the minimum or the maximum tax rate, each layoff of a worker receiving unemployment benefits increases the future tax rate while each recall reduces it. This provides a natural incentive for firms to recall former workers receiving unemployment benefits. We use the Quarterly Workforce Indicators dataset, which provides information on recalls at the county level, and exploit the differences in tax schedule across states to estimate the impact of ER on recalls. We show that the recall share from hires increases with the degree of ER. We then develop a search and matching model with different unemployment insurance (UI) status, endogenous UI take-up, endogenous separations, recalls, and new hires. We illustrate that this model reproduces the effects of ER on recalls admirably. We show that an increase in the intensity of ER translates into a higher recall share at the steady state, especially for unemployed workers collecting unemployment benefits. We then use this model to analyze the labor market dynamics under alternative financing schemes. We show that ER has stabilization virtues—the higher the degree of ER, the less volatile the unemployment rate.

Keywords: Search and matching; Layoffs; Recalls; Experience rating; Unemployment insurance (search for similar items in EconPapers)
JEL-codes: E23 E32 J63 J64 J65 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Unemployment insurance, recalls, and experience rating (2023)
Working Paper: Unemployment insurance, Recalls and Experience Rating (2020)
Working Paper: Unemployment insurance, Recalls and Experience Rating (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:75:y:2023:i:c:s0164070422000751

DOI: 10.1016/j.jmacro.2022.103482

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