Skip to main content

Brownbag Seminars: Unemployment Insurance with Response Heterogeneity

Tuesday, May 17, 2022, 12:00 pm – 1:00 pm

Abstract: The generosity of unemployment insurance (UI) coverage varies with the worker’s age and time contributed to social security in many publicly-funded UI systems, despite a lack of evidence on their relevance for UI policy differentiation. This paper studies whether the responses to UI and the implied fiscal externality vary in these two characteristics. We use administrative data from Germany and a multi-cutoff regression discontinuity design to estimate a comprehensive set of duration and wage elasticities at many discontinuities in potential benefit duration. We find that the fiscal externality of UI decreases with contribution time, but increases with age. These gradients are mainly driven by the duration effects of UI, as any wage effects are small. Our results suggest that both age and short-term contribution time are indeed important determinants of UI responses, and thus relevant for policy differentiation. The welfare cost of UI could be reduced by reallocating resources towards younger workers with stable employment histories.