The Implications of Labor Market Heterogeneity on Unemployment Insurance Design

Serdar Birinci and Kurt See

No 2024-026, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We digitize state-level, time-varying unemployment insurance (UI) laws on initial eligibility, payment amounts, and payment durations, and combine them with microdata on labor market outcomes to estimate UI eligibility, take-up, and replacement rates at the individual level. We document how income and wealth levels affect unemployment risk, eligibility, take-up, and replacement rates both upon job loss and over the course of unemployment spells. We evaluate whether these empirical findings are important for shaping UI policy design using a general-equilibrium, incomplete-markets model with a frictional labor market that matches our empirical findings. We show that a nested, widely used standard model fails to capture these patterns and yields a substantially less generous optimal UI policy compared to the baseline model. We also demonstrate that our empirical results are relevant for microeconometric studies estimating the effects of UI policy changes on labor market outcomes.

Keywords: unemployment insurance; fiscal policy; household behavior; job search (search for similar items in EconPapers)
JEL-codes: E24 H31 J64 J65 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2024-09-19, Revised 2025-09-23
New Economics Papers: this item is included in nep-dge, nep-ipr and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.20955/wp.2024.026 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:98801

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2024.026

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().