Working Paper Revision

Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity


Abstract: We document considerable scope of heterogeneity within the unemployed, especially when the unemployed are divided along eligibility and receipt of unemployment insurance (UI). We develop a heterogeneous-agent job-search model capable of matching the wealth and income differences that distinguish UI recipients from non-recipients. Labor market responses to UI changes are non-monotonic in wealth because the poorest individuals exhibit weak responses due to the high value they attribute to employment. Differential elasticities imply that the extent to which structural models account for the composition of UI recipients is material to aligning predicted responses with empirical estimates and to policy evaluation.

Keywords: Business Cycles; Unemployment Insurance; Job Search;

JEL Classification: E24; E32; J64; J65;

https://doi.org/10.20955/wp.2019.022

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Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2021-03

Number: 2019-022

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