Working Paper

Expanding Unemployment Insurance Coverage

Abstract: This paper develops a quantitative framework to study the impact of Unemployment Insurance (UI) expansions to workers earning below eligibility thresholds. A model of how UI affects welfare and labor supply is developed and calibrated with microeconomic data, including consumption. The model predicts that the current ineligible would choose to stay on UI longer than the current eligible and the margins of why this is the case are quantified. The model is applied to the Great Recession by identifying ineligible workers in the data using machine learning and to an actual expansion during COVID-19 using administrative data. The UI duration for newly eligible under the expansion was 1.7 times longer than the previous eligible but is one-third shorter than the model's economic incentives predict. This suggests caution in extrapolating from the COVID-19 data and the model is used to predict impacts of smaller scale expansions during non-pandemic times.

Keywords: Labor supply; Business cycles; Unemployment insurance;

JEL Classification: J65; E32; E24; J20;

https://doi.org/10.21034/iwp.67

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Opportunity and Inclusive Growth Institute Working Papers

Publication Date: 2023-03-27

Number: 067