Worker Selectivity and Fiscal Externalities from Unemployment Insurance

25 Pages Posted: 3 Sep 2022

See all articles by Benjamin Griffy

Benjamin Griffy

SUNY University at Albany

Stanislav Rabinovich

University of North Carolina (UNC) at Chapel Hill

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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.

Keywords: labor market, search frictions, unemployment insurance

Suggested Citation

Griffy, Benjamin and Rabinovich, Stanislav, Worker Selectivity and Fiscal Externalities from Unemployment Insurance. Available at SSRN: https://ssrn.com/abstract=4208628 or http://dx.doi.org/10.2139/ssrn.4208628

Benjamin Griffy (Contact Author)

SUNY University at Albany ( email )

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Building, Room 109
Albany, NY 12222
United States

Stanislav Rabinovich

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

102 Ridge Road
Chapel Hill, NC NC 27514
United States

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