TITLE

UNEMPLOYMENT INSURANCE AND JOB SEARCH DECISIONS

AUTHOR(S)
Mortensen, Dale T.
PUB. DATE
July 1977
SOURCE
Industrial & Labor Relations Review;Jul77, Vol. 30 Issue 4, p505
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
There are two major conclusions to be drawn from the analysis. First, the effect of UI benefits on measured search unemployment is theoretically ambiguous once the institutional features of most states' programs are taken into account. Specifically, because the potential benefit period per unemployment spell is limited and because only workers experiencing employer-initiated unemployment qualify, workers receiving no benefits (new entrants, exhaustees, and those who quit) have an incentive to become employed more rapidly than would otherwise be the case. Second, although this theoretical influence has not been tested directly, existing empirical evidence is consistent with it. The evidence for a positive benefit effect on duration presented by Holen is inconclusive because the duration measure used is weeks of compensation rather than weeks of unemployment.15 Indeed, the theory predicts Holen's result when the duration of exhaustees is truncated. Classen's result is also predicted by the model.16 However, her estimate of the effect on duration is biased upward if the members of the sample not receiving the increase during the observed unemployment spell are encouraged by it to become employed more rapidly, as our theory suggests. The evidence for a positive effect on duration reported by Ehrenberg and Oaxaca cannot be questioned on these grounds." Nevertheless, it does not imply that measured unemployment increases with unemployment compensation for the following reasons. Suppose that the expected unemployment duration of qualified workers (D) increases in response to an increase in compensation. The stock of such workers in a steady state is U = &deltal;ND where δ is the layoff rate and N is the number of employed workers. If new entrants equal a constant proportion (α) of the labor force (L) and the flow of those who quit equals a constant proportion (β) of the employed stock (N).
ACCESSION #
4458625

 

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