Worker Selectivity and Fiscal Externalities from Unemployment Insurance

25 Pages Posted: 12 Mar 2022 Last revised: 11 Aug 2022

See all articles by Benjamin Griffy

Benjamin Griffy

SUNY University at Albany

Stanislav Rabinovich

University of North Carolina (UNC) at Chapel Hill

Multiple version iconThere are 2 versions of this paper

Date Written: January 19, 2022

Abstract

A robust prediction of job search models is that unemployment insurance (UI) makes workers more selective about which jobs they accept, thereby raising average accepted wages. We provide a sufficient-statistics formula for evaluating the size of this selectivity effect and argue theoretically that it is likely to be small. In a standard sequential search model, the effect of UI on wages is linked 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 over-estimate its fiscal cost and under-estimate its welfare benefit, the model-implied formula 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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