Working Paper: NBER ID: w30651
Authors: Mark Duggan; Andrew C. Johnston; Audrey Guo
Abstract: Unemployment insurance taxes are experience-rated to penalize firms that dismiss workers. We examine whether experience rating acts as an automatic stabilizer in the labor market. We exploit the fact that penalties for layoffs vary by state using detailed data on state tax schedules, and we measure whether firms react less to labor-demand shocks in the presence of greater layoff penalties. The average penalty for layoffs reduces firm adjustment to negative shocks by 11 percent. The results imply experience rating has a stabilizing influence on labor markets. Experience rating saved, for instance, nearly a million jobs in the Great Recession.
Keywords: unemployment insurance; experience rating; labor market stabilization
JEL Codes: H25; H71; J23; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Experience rating (G22) | Firm adjustment to negative shocks (F32) |
| Negative national industry shock (F69) | Employment in industries with lower experience rating exposure (J28) |
| Experience rating (G22) | Employment response to negative shocks (J63) |
| Experience rating (G22) | Employment during downturns (J63) |
| Experience rating (G22) | Layoffs prevention in 2008 (J63) |
| Experience rating (G22) | Sensitivity to marginal UI taxes (H31) |