Disincentive Effects of Unemployment Insurance Benefits

Andreas Hornstein, Marios Karabarbounis, André Kurmann, Etienne Lalé () and Lien Ta

No 23-11, Working Paper from Federal Reserve Bank of Richmond

Abstract: Unemployment insurance (UI) acts both as a disincentive for labor supply and as a demand stimulus which may explain why empirical studies often find limited effects of UI on employment. This paper provides independent estimates of the disincentive effects arising from the largest expansion of UI in U.S. history, the pandemic unemployment benefits. Using high-frequency data on small restaurants and retailers from Homebase, we control for local demand effects by comparing neighboring businesses that largely share the positive impact of UI stimulus. We find that employment in low-wage businesses recovered more slowly than employment in high-wage businesses in labor markets with larger differences in the relative generosity of pandemic UI benefits. According to a labor search model that replicates the estimated employment differences between low- and high-wage businesses, the disincentive effects from the pandemic UI programs held back the aggregate employment recovery by 4.7 percentage points between April and December 2020.

Keywords: Unemployment Insurance; Disincentive Effects; search and matching models (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 J65 (search for similar items in EconPapers)
Pages: 67
Date: 2023-11-01
New Economics Papers: this item is included in nep-dge and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.richmondfed.org/-/media/RichmondFedOrg ... ers/2023/wp23-11.pdf Working Paper (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:fedrwp:97294

Ordering information: This working paper can be ordered from

DOI: 10.21144/wp23-11

Access Statistics for this paper

More papers in Working Paper from Federal Reserve Bank of Richmond Contact information at EDIRC.
Bibliographic data for series maintained by Christian Pascasio ().