Direct Labor Market Effects of Unemployment Insurance

[Excerpt] With high current interest in unemployment and inflation, policy makers and academicians have begun to reassess the impact of unemployment insurance on the labor market. Some ask whether high unemployment rates are partly the result of an addition to the labor market of workers with a high propensity for unemployment. Others see unemployment as being partly caused by an increasing tendency for workers to refuse “bad” jobs. Still others concentrate on the factors that lead to greater labor turnover and flows of workers through the labor market. Consequently, there has evolved a “new view” of unemployment, which considers more than the familiar concepts of deficient demand and structural and seasonal unemployment. It also pays attention to job search processes and the instability of certain jobs and certain workers. Based on this “new view,” this paper seeks to gauge the impact of the American system of unemployment insurance (UI) on the labor market. The evaluative issues are: the efficiency of UI as a tool for income maintenance, the extent to which UI leads to greater unemployment, and UI’s income distribution effects