The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation

50 Pages Posted: 31 Aug 2016 Last revised: 28 Aug 2021

See all articles by Johannes F. Schmieder

Johannes F. Schmieder

Boston University - Department of Economics; IZA; National Bureau of Economic Research (NBER)

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2016

Abstract

The Great Recession has renewed interest in Unemployment Insurance (UI) programs around the world. At the same time, there have been important advances in both theory and measurement of UI. In this paper, we first use the theory to present a unified treatment of the welfare effects of UI benefit levels and durations and derive convenient expressions of the disincentive effect of UI. We then discuss recent estimates of the effect of UI benefit levels and durations on labor supply based, to a large extent, on high-quality research designs and administrative data. We relate these estimates directly to the sufficient statistics identified by the model. We also discuss several active and open areas of research on UI. These include the effect of UI on aggregate labor market outcomes, the effect of UI on job outcomes, the long-term effects of UI, the effects of UI under non-standard behavioral assumptions, and the interactions of UI with other programs. While our review of the new experimental estimates confirms the range of negative labor supply effects of the previous literature, we show based on the model that these estimates are imperfect proxies for the actual disincentive effects. We also isolate several important areas in need for additional research, including estimates of the social value of UI as well as the effects of UI in less-developed countries.

Suggested Citation

Schmieder, Johannes F. and Von Wachter, Till, The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation (August 2016). NBER Working Paper No. w22564, Available at SSRN: https://ssrn.com/abstract=2832568

Johannes F. Schmieder (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

IZA ( email )

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Till Von Wachter

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

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