Unemployment Insurance Take-up Rates in an Equilibrium Search Model

David Fuller, Stéphane Auray and Damba Lkhagvasuren

No 13001, Working Papers from Concordia University, Department of Economics

Abstract: In the US unemployment insurance (UI) system, only a fraction of those eligible for benefits actually collect them. We estimate this fraction using CPS data and detailed state-level eligibility criteria. We find that the fraction of eligible unemployed collecting benefits has been persistently below one, and is countercyclical. We show these empirical facts can be explained in an equilibrium search model where firms finance UI benefits via a payroll tax, and are heterogeneous with respect to their specific tax rate, which is experience rated. In equilibrium, low tax firms effectively offer workers an alternative UI scheme featuring a faster job arrival rate and a higher wage offer. Some eligible workers prefer the ``market'' scheme and thus do not collect UI. Quantitatively, the model does well matching key moments in the data. In addition, if all eligible unemployed collect, benefit expenditures increase by 29% and welfare increases by 0.43%. Average search effort decreases, but the unemployment rate and duration decrease as vacancy creation increases.

Keywords: unemployment insurance; take-up; matching frictions; search (search for similar items in EconPapers)
JEL-codes: E61 J32 J64 J65 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-06-26
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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