Essays on unemployment insurance

This dissertation includes two essays examining issues on the topic of unemployment insurance. Essay one investigates various aspects of unemployment insurance programs in the labor market using a general equilibrium search model calibrated using data from a variety of sources. The multi-sector model developed allows analysis of the cross-subsidization across sectors that can arise when the experience rating for financing unemployment insurance is imperfect. Our results support the conventional wisdom that imperfect experience rating subsidizes unemployment and makes the economy less efficient. In addition, we establish the effect of various unemployment insurance parameters on the composition and duration of unemployment across sectors. One key finding is that the extremely low level of taxable wage base maintained in many U.S. states dilutes the effect of the experience rating system and expands the cross-subsidization between firms hiring low-skilled and high-skilled workers. Essay two examines the effect of experience rating on duration of unemployment spell for the unemployment insurance benefit recipients. Unlike existing literature examining the effects of imperfect experience rating on temporary layoff decisions, this paper tests whether imperfect experience rating in financing unemployment insurance (UI) leads to an increase in unemployment duration. In doing so, we use a state-level aggregate data from the ET Handbook 394 for 1988–1997 and from the CPS for 1992–1997. In particular, a unique data set of state average unemployment durations is derived, assuming Weibull distribution. Empirical results suggest that the duration of unemployment would be partly extended by the imperfect experience rating. Another finding is that the potential UI benefit duration is more likely to affect the unemployment duration for UI recipients than the replacement ratio