Worker Selectivity and Fiscal Externalities from Unemployment Insurance

22 Pages Posted: 12 Mar 2022

See all articles by Benjamin Griffy

Benjamin Griffy

SUNY University at Albany

Stanislav Rabinovich

University of North Carolina (UNC) at Chapel Hill

Date Written: January 19, 2022

Abstract

By making workers more selective, unemployment insurance (UI) increases re-employment wages and thereby generates a positive fiscal externality. We provide a sufficient-statistics formula for evaluating the size of this fiscal externality and argue theoretically that it is likely to be small. In a standard sequential search model, the effect of UI on wages is proportional to its effect on the job-finding hazard; the slope of the relationship between these elasticities depends on a small number of estimable statistics, key among them observed worker flows. Plausible calibrations of the model imply that the magnitude of the wage elasticity is small relative to the job-finding elasticity. Although ignoring the wage effect of UI would overestimate its fiscal cost and underestimate its welfare benefit, the model predicts the magnitude of this bias to be small.

Suggested Citation

Griffy, Benjamin and Rabinovich, Stanislav, Worker Selectivity and Fiscal Externalities from Unemployment Insurance (January 19, 2022). Available at SSRN: https://ssrn.com/abstract=4013010 or http://dx.doi.org/10.2139/ssrn.4013010

Benjamin Griffy

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States

Stanislav Rabinovich (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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