Working Paper: NBER ID: w21819
Authors: Nathaniel Hendren
Abstract: This paper studies the implications of individuals’ knowledge of future job loss for the existence of an unemployment insurance (UI) market. Learning about job loss leads to consumption decreases and spousal labor supply increases. This suggests existing willingness to pay estimates for UI understate its value. But, it yields new estimation methodologies that account for and exploit responses to learning about future job loss. Although my new willingness to pay estimates exceed previous estimates, I estimate much larger frictions imposed by private information. This suggests privately-traded UI policies would be too adversely selected to be profitable, at any price.
Keywords: No keywords provided
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| underestimation of willingness to pay for unemployment insurance (J65) | existing methodologies that do not account for anticipatory responses (C53) |
| consumption changes associated with unemployment (J64) | markup for unemployment insurance (J65) |
| adverse selection in private unemployment insurance markets (J65) | unprofitability of such policies (L44) |
| subjective probability elicitations about job loss (D81) | actual future job loss (J63) |
| 1 percentage point increase in subjective probability of job loss (J63) | 0.00836 percentage point increase in likelihood of actual job loss (J63) |
| knowledge of job loss risk (J63) | consumption behavior (D10) |
| knowledge of job loss risk (J63) | spousal labor supply (J22) |
| learning about potential job loss (J63) | decrease in consumption (E21) |
| learning about potential job loss (J63) | increase in spousal labor supply (D13) |