Working Paper: NBER ID: w30152
Authors: Gordon Dahl; Matthew M Knepper
Abstract: We study the labor market effects of permanent 23-50% reductions in unemployment insurance benefits available in seven states. Leveraging linked firm-establishment data, we find that establishments based in reform states experience 1.5-2.4% faster employment growth relative to the same firm's establishments in other states. Using a similar multi-state firm design, starting salaries are 1.8-7.2% lower in reform states and posted salaries for the same job fall by 1.4-5.5%. These labor supply shocks yield an average labor demand elasticity of -1.0. Our results reveal a substantial decline in match quality and worker bargaining power as UI benefits become less generous.
Keywords: Unemployment Insurance; Labor Market; Employment Growth; Wages
JEL Codes: J38; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduction in UI benefits (J65) | Increased employment growth (J23) |
| Reduction in UI benefits (J65) | Decreased starting salaries (J39) |
| Decreased starting salaries (J39) | Lower match quality (C78) |
| Reduction in UI benefits (J65) | Decreased reservation wages (J39) |
| Reduction in UI benefits (J65) | Decreased unemployment spell lengths (J64) |
| Employment changes (J63) | Wage adjustments (J31) |