Download This PaperUnemployment-Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data
44 Pages Posted: 13 Apr 2020 Last revised: 6 May 2025
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Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data
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
JEL Classification: D22, H22, H25, H71, J23, J32, J38, J65
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