“The Effect of Unemployment Insurance Eligibility in Equilibrium” with David Wiczer, Ben Griffy (2024)

In the U.S., workers whose past earnings were below a threshold are ineligible to receive unemployment insurance (UI), which creates a discontinuous jump in their value of being unemployed. Exploiting this in a regression discontinuity design using administrative panel data, we estimate a sizable local effect from UI eligibility on earnings in the next employer, around $300 or roughly 10% of quarterly earnings. This evidence of a UI treatment effect on re-employment outcomes, however, understates UI’s causal effect and does not distinguish between underlying reasons, either a higher share of production or more productive matches. With both a tractable equilibrium and calibrate quantitative model, we interpret the quasi-experimental estimates in the context of endogenous non-compliance and search direction choices. The empirical estimates understate the true causal effect by 4.4% and this high pass-through of UI to earnings implies a low trade-off of between wage and finding rate, essentially very low bargaining power. [Click here for more]