Eligibility, experience rating, and unemployment insurance take‐up

Abstract

In this paper, we investigate the causes and consequences of “unclaimed” unemployment insurance (UI) benefits. A search model is developed where the costs to collecting UI benefits include both a traditional “fixed” administrative cost and an endogenous cost arising from worker and firm interactions. Experience rated taxes give firms an incentive to challenge a worker's UI claim, and these challenges are costly for the worker. Exploiting data on improper denials of UI benefits across states in the U.S. system, a two‐way fixed effects analysis shows a statistically significant negative relationship between the improper denials and the UI take‐up rate, providing empirical support for our model. We calibrate the model to elasticities implied by the two‐way fixed effects regression to quantify the relative size of these UI collection costs. The results imply that on average the costs associated with firm challenges of UI claims account for 41% of the total costs of collecting, with improper denials accounting for 8% of the total cost. The endogenous collection costs imply the unemployment rate responds much slower to changes in UI benefits relative to a model with fixed collection costs. Finally, removing all eligibility requirements and allowing workers to collect UI benefits without cost shows these costs to be 4.5% of expected output net of vacancy costs. Moreover, this change has minimal impact on the unemployment rate.

Labor Market Responses to Unemployment Insurance: The Role of Heterogeneity

“…18 The UI system has an experience rating system that penalizes firms for additional layoffs by increasing tax rates. This gives firms an incentive to challenge worker UI claims (Auray and Fuller, 2020). Hence, a claim's success of approval sometimes depends on how much effort the worker puts into overturning the firm's challenge.…”

Unemployment insurance, recalls, and experience rating

“…This is purely exogenous. A natural extension is the introduction of endogenous take-up rates as inAuray et al (2019) and endogenous cost arising from worker and firm interactions as inAuray & Fuller (2018). However, this is beyond the scope of this paper.15 For tractability reasons.…”

Firms and Unemployment Insurance Take-Up

“…Based on interviews with job losers, Gould-Werth (2016) finds that some firms actively help workers in claiming UI, whereas others are indifferent, and still others actively impede claims. Auray, Fuller, and Lkhagvasuren (2019) and Auray and Fuller (2020) use state-by-time variation in unclaimed benefits to study the effect of denied claims on UI take-up and link their results to experience rating. 4 For surveys of program take-up, see, for example, Currie (2006) and Ko and Moffitt (2022), which do not discuss the role of firms.…”

“…Model of experience rating, take-up, and targeting So far we have established that there are firm effects in UI claims and appeals. In this section, we write down a model which serves three purposes.26 First, it makes precise the connection26 The model follows aspects ofAuray and Fuller (2020).…”