Unemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data

Andrew Johnston

No 13117, IZA Discussion Papers from IZA Network @ LISER

Abstract: To finance unemployment insurance, states raise payroll tax rates on employers who engage in layoffs. Tax rates are, therefore, highest for firms after downturns, potentially hampering labor-market recovery. Using full-population, administrative records from Florida, I estimate the effect of these tax increases on firm behavior leveraging a regression kink design in the tax schedule. Tax hikes reduce hiring and employment substantially, with no effect on layoffs or wages. The results imply unanticipated costs of the financing regime which reduce the optimal benefit by a quarter and account for twelve percent of the unemployment in the wake of the Great Recession.

Keywords: payroll taxes; unemployment insurance; recession (search for similar items in EconPapers)
JEL-codes: D22 H22 H25 H71 J23 J32 J38 J65 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-04
New Economics Papers: this item is included in nep-ias, nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - published in: American Economic Journal: Economic Policy , 2021, 13 (1), 266 - 293

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Related works:
Journal Article: Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp13117

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