Essays on unemployment insurance

Brittany A Teahan, Purdue University

Abstract

This thesis is comprised of three independent chapters. The first two chapters investigate the effect of unemployment insurance on job search behavior using laboratory experiments. The third chapter uses survey data to study the impact of unemployment insurance on alcohol use and abuse following job loss. In the first chapter, I study the effect of changes in unemployment insurance benefit generosity on search for vertically differentiated jobs. I use a laboratory experiment to observe search effort and outcomes under four treatments that differ in benefit level and benefit exhaustion rate. Two job opportunities differ in the probability of finding a job conditional on effort, and the wage. Consistent with theoretical predictions, the results show a positive relationship between benefit generosity and the propensity of subjects to search for a job which pays a higher wage but is more difficult to find. However, subjects are less responsive to changes in benefits than predicted; and the propensity to search for the good job declines over time even in a stationary environment. Last, I provide insight into why search is suboptimal and evaluate the implications of suboptimal search for the design of UI programs and subsequent matching of workers and employers. In the second chapter, I use a laboratory experiment to investigate the effect of labor market policies on job search and the resulting productivity of the employer-employee match. Job offers consist of one of two possible real effort tasks, intermediate level math or verbal questions, and a piece rate wage. Unemployed subjects receive job offers and must accept or reject the offer. The subject's ability in each task is used as a measure of idiosyncratic productivity. I find evidence that unemployment insurance benefits increase the productivity of a worker-firm match by increasing worker selectivity which allows subjects to more often accept a job that matches their skills. In the third chapter, joint work with Robert Lantis, we investigate potential unintended consequences of unemployment insurance (UI) policy on alcohol use and abuse. Using NLSY data supplemented with Geocode data, we estimate the effect of benefit replacement rates on changes in individual alcohol consumption following job loss. Identification relies on variation in replacement rates across states and over time. Benefits provide income to the unemployed which enables individuals to smooth consumption and also may reduce the stress and anxiety of job loss. Results indicate higher levels of benefits increase the amount of alcohol unemployed individuals consume. Moreover, a higher level of benefits increases the likelihood an individual abuses alcohol following job loss. Individuals' responsiveness to changes in replacement rates varies based on drinking history with moderate drinkers the most responsive to changes.

Degree

Ph.D.

Advisors

Cason, Purdue University.

Subject Area

Economics|Labor economics

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