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

74 Pages Posted: 1 Nov 2017 Last revised: 15 Dec 2019

See all articles by Andrew C. Johnston

Andrew C. Johnston

University of California, Merced - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2019

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 calculation by a quarter and account for a tenth of the unemployment after the Great Recession.

Keywords: Unemployment, Taxation, Labor Demand

JEL Classification: D22, H22, H25, H71, J23, J32, J38, J65

Suggested Citation

Johnston, Andrew C., Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3062412 or http://dx.doi.org/10.2139/ssrn.3062412

Andrew C. Johnston (Contact Author)

University of California, Merced - Department of Economics ( email )

P.O. Box 2039
Merced, CA 95344
United States

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