IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/58025.html
   My bibliography  Save this paper

Assessing the welfare effects of unemployment benefits using the regression kink design

Author

Listed:
  • Landais, Camille

Abstract

I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from 1976 to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how one can use the weighted difference between the behavioral response to an increase in potential duration and to an increase in benefit level to identify the pure moral hazard effect of UI. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Suggested Citation

  • Landais, Camille, 2012. "Assessing the welfare effects of unemployment benefits using the regression kink design," LSE Research Online Documents on Economics 58025, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:58025
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/58025/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Saez, Emmanuel & Landais, Camille & Michaillat, Pascal, 2010. "Optimal Unemployment Insurance over the Business Cycle," CEPR Discussion Papers 8132, C.E.P.R. Discussion Papers.
    2. David E. Card & David S. Lee & Zhuan Pei & Andrea Weber, 2012. "Nonlinear Policy Rules and the Identification and Estimation of Causal Effects in a Generalized Regression Kink Design," NRN working papers 2012-14, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
    3. David Card & Raj Chetty & Andrea Weber, 2007. "Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1511-1560.
    4. Rebecca M. Blank & David E. Card, 1991. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1157-1189.
    5. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    6. Kroft, Kory, 2008. "Takeup, social multipliers and optimal social insurance," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 722-737, April.
    7. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 143-213.
    8. Marianne Simonsen & Lars Skipper & Niels Skipper, 2016. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(2), pages 320-337, March.
    9. Robert Shimer & Ivan Werning, 2008. "Liquidity and Insurance for the Unemployed," American Economic Review, American Economic Association, vol. 98(5), pages 1922-1942, December.
    10. Alan B. Krueger & Andreas Mueller, 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Working Papers 1295, Princeton University, Department of Economics, Center for Economic Policy Studies..
    11. Dong, Yingying, 2010. "Jumpy or Kinky? Regression Discontinuity without the Discontinuity," MPRA Paper 25461, University Library of Munich, Germany.
    12. Nicola Pavoni, 2009. "Optimal Unemployment Insurance, With Human Capital Depreciation, And Duration Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 323-362, May.
    13. Dong, Yingying, 2010. "Jumpy or Kinky? Regression Discontinuity without the Discontinuity," MPRA Paper 25427, University Library of Munich, Germany.
    14. Ganong, Peter & Jäger, Simon, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," IZA Discussion Papers 8282, Institute of Labor Economics (IZA).
    15. Stefano DellaVigna & M. Daniele Paserman, 2005. "Job Search and Impatience," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 527-588, July.
    16. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February.
    17. van Ours, J.C. & Vodopivec, M., 2006. "Shortening the Potential Duration of Unemployment Benefits does not affect the Quality of Post-Unemployed Jobs : Evidence from a Natural Experiment," Discussion Paper 2006-56, Tilburg University, Center for Economic Research.
    18. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    19. Krueger, Alan B. & Meyer, Bruce D., 2002. "Labor supply effects of social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 33, pages 2327-2392, Elsevier.
    20. Walter Corson & Jean Grossman & Walter Nicholson, 1986. "An Evaluation of the Federal Supplemental Compensation Program," Mathematica Policy Research Reports 5abe260128b04a4f8639e65b0, Mathematica Policy Research.
    21. Chetty, Raj, 2006. "A general formula for the optimal level of social insurance," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1879-1901, November.
    22. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
    23. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(2), pages 701-752.
    24. Bertil Holmlund, 1998. "Unemployment Insurance in Theory and Practice," Scandinavian Journal of Economics, Wiley Blackwell, vol. 100(1), pages 113-141, March.
    25. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    26. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-438, April.
    27. Lalive, Rafael, 2008. "How do extended benefits affect unemployment duration A regression discontinuity approach," Journal of Econometrics, Elsevier, vol. 142(2), pages 785-806, February.
    28. Helena Skyt Nielsen & Torben Sørensen & Christopher Taber, 2010. "Estimating the Effect of Student Aid on College Enrollment: Evidence from a Government Grant Policy Reform," NBER Chapters, in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 185-215, National Bureau of Economic Research, Inc.
    29. Jaeger, Simon C & Ganong, Peter Nathan, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," Scholarly Articles 34222894, Harvard University Department of Economics.
    30. Raj Chetty, 2008. "Erratum: Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1197-1197, December.
    31. repec:pri:cepsud:215krueger is not listed on IDEAS
    32. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    33. repec:bla:scandj:v:100:y:1998:i:1:p:113-41 is not listed on IDEAS
    34. repec:mpr:mprres:668 is not listed on IDEAS
    35. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
    36. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-1362, December.
    37. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
    38. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series WP2011-063, Boston University - Department of Economics.
    39. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
    40. van Ours, Jan C. & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," IZA Discussion Papers 2171, Institute of Labor Economics (IZA).
    41. Card, David & Levine, Phillip B., 2000. "Extended benefits and the duration of UI spells: evidence from the New Jersey extended benefit program," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 107-138, October.
    42. van Ours, Jan C. & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from," CEPR Discussion Papers 5741, C.E.P.R. Discussion Papers.
    43. Alan B. Krueger & Andreas Mueller, 2011. "Job Search, Emotional Well-Being and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 1-81.
    44. repec:pri:indrel:dsp014j03cz656 is not listed on IDEAS
    45. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    46. Gruber, Jonathan, 1997. "The Consumption Smoothing Benefits of Unemployment Insurance," American Economic Review, American Economic Association, vol. 87(1), pages 192-205, March.
    47. Krueger, Alan B. & Mueller, Andreas I., 2011. "Job Search and Job Finding in a Period of Mass Unemployment: Evidence from High-Frequency Longitudinal Data," IZA Discussion Papers 5450, Institute of Labor Economics (IZA).
    48. Daniel Aaronson & Bhashkar Mazumder & Shani Schechter, 2010. "What is behind the rise in long-term unemployment?," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 34(Q II), pages 28-51.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Konstantinos Tatsiramos & Jan C. Ours, 2014. "Labor Market Effects Of Unemployment Insurance Design," Journal of Economic Surveys, Wiley Blackwell, vol. 28(2), pages 284-311, April.
    2. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    3. Arash Nekoei & Andrea Weber, 2017. "Does Extending Unemployment Benefits Improve Job Quality?," American Economic Review, American Economic Association, vol. 107(2), pages 527-561, February.
    4. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2018. "The Optimal Timing of Unemployment Benefits: Theory and Evidence from Sweden," American Economic Review, American Economic Association, vol. 108(4-5), pages 985-1033, April.
    5. Jonas Kolsrud & Camille Landais & Peter Nilsson & Johannes Spinnewijn, 2015. "The Optimal Timing of UI Benefits: Theory and Evidence from Sweden," CEP Discussion Papers dp1361, Centre for Economic Performance, LSE.
    6. Gonzalez-Rozada, Martin & Ruffo, Hernán, 2016. "Optimal unemployment benefits in the presence of informal labor markets," Labour Economics, Elsevier, vol. 41(C), pages 204-227.
    7. Ahn, Taehyun, 2018. "Assessing the effects of reemployment bonuses on job search: A regression discontinuity approach," Journal of Public Economics, Elsevier, vol. 165(C), pages 82-100.
    8. Walter Nicholson & Karen Needels & Heinrich Hock, 2014. "Unemployment Compensation During the Great Recession: Theory and Evidence," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(1), pages 187-218, March.
    9. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2013. "The Causal Effect of Unemployment Duration on Wages: Evidence from Unemployment Insurance Extensions," NBER Working Papers 19772, National Bureau of Economic Research, Inc.
    10. Johannes Spinnewijn, 2020. "The Trade‐Off between Insurance and Incentives in Differentiated Unemployment Policies," Fiscal Studies, John Wiley & Sons, vol. 41(1), pages 101-127, March.
    11. Johannes F. Schmieder & Till von Wachter, 2016. "The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 547-581, October.
    12. Robert Valletta, 2014. "Recent extensions of U.S. unemployment benefits: search responses in alternative labor market states," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-25, December.
    13. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    14. Pauline Leung & Christopher J. O'Leary, 2015. "Should UI Eligibility Be Expanded to Low-Earning Workers? Evidence on Employment, Transfer Receipt, and Income from Administrative Data," Upjohn Working Papers 15-236, W.E. Upjohn Institute for Employment Research.
    15. Walter Nicholson & Karen Needels, "undated". "The EUC08 Program in Theoretical and Historical Perspective," Mathematica Policy Research Reports 9046cb11c3aa44c8a036a6e38, Mathematica Policy Research.
    16. David Card & David S. Lee & Zhuan Pei & Andrea Weber, 2015. "Inference on Causal Effects in a Generalized Regression Kink Design," Econometrica, Econometric Society, vol. 83, pages 2453-2483, November.
    17. Saez, Emmanuel & Landais, Camille & Michaillat, Pascal, 2010. "Optimal Unemployment Insurance over the Business Cycle," CEPR Discussion Papers 8132, C.E.P.R. Discussion Papers.
    18. Johannes F. Schmieder† & Till von Wachter & Stefan Bender, 2011. "The Effects Of Extended Unemployment Insurance Over The Business Cycle: Evidence From Regression Discontinuity Estimates Over Twenty Years," Boston University - Department of Economics - Working Papers Series WP2011-063, Boston University - Department of Economics.
    19. Elira Kuka, 2020. "Quantifying the Benefits of Social Insurance: Unemployment Insurance and Health," The Review of Economics and Statistics, MIT Press, vol. 102(3), pages 490-505, July.
    20. Martín-Román, Ángel L., 2022. "Beyond the added-worker and the discouraged-worker effects: the entitled-worker effect," Economic Modelling, Elsevier, vol. 110(C).

    More about this item

    Keywords

    unemployment insurance; regression kink design;

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:58025. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.