Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity

RePEc Short ID: pbi318
ORCID iD: 0000-0001-7323-1932

Birinci, Serdar; See, Kurt

doi:10.20955/wp.2019.022

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

Status: Published in American Economic Journal: Macroeconomics