License to Fire? Unemployment Insurance and the Moral Cost of Layoffs

38 Pages Posted: 29 Jul 2020

See all articles by Daniel Keum

Daniel Keum

Columbia University - Columbia Business School

Stephan Meier

Columbia University - Columbia Business School

Abstract

Expanding unemployment insurance (UI) not only reduces the burden for the unemployed but also the moral cost of layoffs to firms and their managers. Using staggered expansions of UI across US states, we show that expanding UI leads to larger layoffs in firms experiencing negative economic shocks. The effects are stronger in weakly governed and financially unconstrained firms, where managers have greater discretion to avoid moral cost. This study presents moral cost as a novel microeconomic channel through which UI affects layoff decisions, which can compromise its effectiveness as a social insurance program and an automatic stabilizer.

JEL Classification: D04, D91, J65

Suggested Citation

Keum, Daniel and Meier, Stephan, License to Fire? Unemployment Insurance and the Moral Cost of Layoffs. IZA Discussion Paper No. 13497, Available at SSRN: https://ssrn.com/abstract=3654934

Daniel Keum (Contact Author)

Columbia University - Columbia Business School

Stephan Meier

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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