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Eligibility, Experience Rating, and Unemployment Insurance Take-up

Stéphane Auray and David L. Fuller ()
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David L. Fuller: Université du Wisconsin-Oshkosh

No 2018-18, Working Papers from Center for Research in Economics and Statistics

Abstract: In this paper we investigate the causes and consequences of "unclaimed" unemployment insurance (UI) benefits. A search model is developed where the costs to collecting UI benefits include both a traditional "fixed" administrative cost and an endogenous cost arising from worker and firm interactions. Experience rated taxes give firms an incentive to challenge a worker's UI claim, and these challenges are costly for the worker. Exploiting data on improper denials of UI benefits across states in the U.S. system, a two-way fixed e ects analysis shows a statistically significant negative relationship between the improper denials and the UI take-up rate, providing empirical support for our model. We calibrate the model to elasticities implied by the two-way fixed e ects regression to quantify the relative size of these UI collection costs. The results imply that on average the costs associated with firm challenges of UI claims account for 42% of the total costs of collecting, with improper denials accounting for 6% of the total cost. The endogenous collection costs imply the unemployment rate responds much slower to changes in UI benefits relative to a model with fixed collection costs. Finally, removing all eligibility requirements and allowing workers to collect UI benefits without cost increases welfare by almost 5% with minimal impact on the unemployment rate.

Keywords: Unemployment Insurance; Take-up Rate; Experience Rating; Matching Frictions; Search (search for similar items in EconPapers)
JEL-codes: E61 J32 J64 J65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-mac
Date: 2018-10-03
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