Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data
74 Pages Posted: 1 Nov 2017 Last revised: 15 Dec 2019
Date Written: January 1, 2019
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
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