The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System

Mark Stater () and Jeffrey B Wenger ()
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Mark Stater: Department of Economics, Trinity College
Jeffrey B Wenger: Department of Public Administration and Policy, The University of Georgia

Eastern Economic Journal, 2017, vol. 43, issue 1, No 2, 17-36

Abstract: Abstract We examine how the reservation wage varies with the waiting time to apply for unemployment benefits. We find that the waiting time has a negative effect on the reservation wage, suggesting that unemployment generates significant and immediate harm for the unemployed. Our results are unique in that they are based on short-term, incomplete spells of unemployment that are precisely measured in weeks. We address the endogeneity of the waiting time using instrumental variables associated with errors in the unemployment insurance (UI) claim, and note that our estimates are likely a lower bound for the welfare declines experienced by the unemployed.

Keywords: reservation wages; unemployment duration; unemployment insurance; job search; instrumental variables; J64; J65; J68 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/eej.2015.22

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