Skip to main content Skip to main content

Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity

We document considerable scope of heterogeneity within the unemployed, especially when the unemployed are divided along eligibility and receipt of unemployment insurance (UI). We study the implications of this heterogeneity on UI’s insurance-incentive trade-off using a heterogeneous-agent job-search model capable of matching the wealth and income differences that distinguish UI recipients from non-recipients. Insurance benefits are larger for UI recipients who are predominantly wealth-poor. Meanwhile, incentive costs are non-monotonic in wealth because the poorest individuals, who value employment, exhibit weak responses. Differential elasticities imply that accounting for the composition of recipients is material to aligning model predictions with empirical estimates.

Read Full Text