Working Paper
These Caps Spilleth Over: Equilibrium Effects of Unemployment Insurance
Abstract: The design of US unemployment insurance (UI) policy--which features benefits assigned as a percentage of past wages up to a cap--engenders tests for spillovers from policy variation to workers who are not directly treated. We test for and find a pattern of spillovers from state-level UI policy changes that cannot be neatly reconciled with workhorse or cutting-edge models of UI spillovers. Instead, we show that the documented pattern conforms with the predictions of a canonical model of information frictions: wage posting with random search. Taken together, our results provide novel evidence of quantitatively- and policy-relevant information frictions in this market. Moreover, our estimates suggest that aggregate unemployment of insured individuals would decrease if the replacement rate were increased while holding the cap constant.
JEL Classification: J65; J64; D62; H23; J42; D42; D83;
https://doi.org/10.17016/FEDS.2022.074
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File(s): File format is application/pdf https://www.federalreserve.gov/econres/feds/files/2022074pap.pdf
Authors
Bibliographic Information
Provider: Board of Governors of the Federal Reserve System (U.S.)
Part of Series: Finance and Economics Discussion Series
Publication Date: 2022-11-04
Number: 2022-074
Pages: 69 p.