Do Unemployment Insurance Benefits Improve Match and Employer Quality? Evidence from Recent U.S. Recessions

44 Pages Posted: 4 Aug 2020 Last revised: 5 Nov 2022

See all articles by Ammar Farooq

Ammar Farooq

Georgetown University

Adriana D. Kugler

McCourt School of Public Policy ; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; National Bureau of Economic Research (NBER)

Umberto Muratori

Georgetown University

Date Written: July 2020

Abstract

Unemployment Insurance (UI) benefits have a moral hazard effect and a liquidity effect, with both generating increases in unemployment spells but the latter increasing wages due to the ability to find better matches or better jobs. Previous papers, however, find mixed evidence on the impact of UI on wages. In this paper, we re-examine the effect of UI on wages in the U.S. and present novel evidence using LEHD data to examine the channels through which UI increases earnings, including: (1) the quality of the match, (2) positive sorting of employers and employees, and (3) the quality of the employer. We find that the increased UI generosity in the U.S. increased wages by both increasing the quality of the match as well as the quality of the job obtained after the unemployment spell, though there is less evidence of improved sorting. Consistent with improvements in match and employer quality, we also find that the likelihood of remaining on the job increases with UI generosity. Consistent with a liquidity effect on search, we also find that the effects on the quality of the match are larger for those who are more likely to be liquidity constrained, including women, minorities, and the less-educated.

Suggested Citation

Farooq, Ammar and Kugler, Adriana Debora and Muratori, Umberto, Do Unemployment Insurance Benefits Improve Match and Employer Quality? Evidence from Recent U.S. Recessions (July 2020). NBER Working Paper No. w27574, Available at SSRN: https://ssrn.com/abstract=3665868

Ammar Farooq (Contact Author)

Georgetown University ( email )

Washington, DC 20057
United States

Adriana Debora Kugler

McCourt School of Public Policy ( email )

3700 O ST NW
311 Old North
Washington, DC 20057
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Umberto Muratori

Georgetown University

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