Contrary to standard search models predictions, past studies have not found a positive effect of unemployment insurance (UI) on reemployment wages. We estimate a positive UI wage effect exploiting an ...age-based regression discontinuity design in Austria. A search model incorporating duration dependence predicts two countervailing forces: UI induces workers to seek higher-wage jobs, but reduces wages by lengthening unemployment. Matching-function heterogeneity plausibly generates a negative relationship between the UI unemployment-duration and wage effects, which holds empirically in our sample and across studies, reconciling disparate wage-effect estimates. Empirically, UI raises wages by improving reemployment firm quality and attenuating wage drops.
I document evidence of a systematic bias in the widely-used estimate of annual hours worked using the Current Population Survey. The bias stems from multiplying the number of weeks worked by the ...median – instead of the mean – of weekly working hours. Theoretical and empirical evidence suggests that this bias leads to an overestimation of annual hours.
•I document evidence of a systematic bias in the widely-used estimate of annual hours worked using the Current Population Survey.•The bias stems from multiplying the number of weeks worked by the median – instead of the mean – weekly working hours.•Theoretical and empirical evidence suggest that this bias can lead to an over-estimation of annual hours.
Abstract
This article aims to measure and understand the role of inheritances in shaping wealth inequality. We use a quasi-experimental design and Swedish administrative data to document that the ...average heir depletes her inheritance within a decade while the inheritances of wealthy heirs remain intact. These different depletion rates are not due to different consumption or labour supply responses but due to different rates of return on inherited wealth. Upon their receipt, inheritances reduce relative measures of wealth inequality, such as top shares or percentile ratios. Theoretically, this reduction in inequality could be due to either a compressed inheritance distribution or similar chances of having wealthy parents (high intergenerational mobility). Empirically, the first force is more significant in Sweden. Within a decade, however, the effect is reversed: inheritances increase wealth inequality since the different depletion rates widen the inequality in inherited wealth over time. This implies that inheritance taxation can reduce long run wealth inequality only through the taxation of wealthy heirs.
Are an immigrant's decisions affected in real time by her home country's economy? I examine this question by exploiting exchange rate variations as exogenous price shocks to immigrants' budget ...constraints. I find that in response to a 10 percent dollar appreciation, an immigrant decreases her earnings by 0.92 percent, mainly by reducing hours worked. The exchange rate effect is greater for recent immigrants, married immigrants with absent spouses, Mexicans close to the border, and immigrants from countries with higher remittance flows. A neoclassical interpretation of these findings suggests that the income effect exceeds the cross-substitution effect. Remittance targets offer an alternative explanation.
Using novel administrative data from Austria, we investigate the nature of temporary layoffs and recalls. We find that on average jobs ending in temporary layoffs lasted shorter but paid higher ...wages. The majority of temporarily laid-off workers return to their previous employer, but also one-fifth of those permanently laid-off are recalled. Compared to job switchers, recalls have shorter unemployment spells and do not experience wage losses. Negative duration dependence of unemployment only appears once recall exits are excluded for temporary and permanent layoffs. However, for temporary layoffs, the aggregate pattern masks significant heterogeneity by pre-unemployment tenure. Additional survey evidence suggests a lower average search level for temporary layoffs.
This paper studies whether adverse selection can rationalize a universal mandate for unemployment insurance (UI). Building on a unique feature of the unemployment policy in Sweden, where workers can ...opt for supplemental UI coverage above a minimum mandate, we provide the first direct evidence for adverse selection in UI and derive its implications for UI design. We find that the unemployment risk is more than twice as high for workers who buy supplemental coverage. Exploiting variation in risk and prices, we show how 25– 30 percent of this correlation is driven by risk-based selection, with the remainder driven by moral hazard. Due to the moral hazard and despite the adverse selection we find that mandating the supplemental coverage to individuals with low willingness-to-pay would be suboptimal. We show under which conditions a design leaving choice to workers would dominate a UI system with a single mandate. In this design, using a subsidy for supplemental coverage is optimal and complementary to the use of a minimum mandate.
Contrary to the predictions of standard reservation-wage search models, empirical studies consistently find that an extension of UI increases unemployment duration \textit{without} improving ...subsequent wages. Chapter 1 addresses this puzzle in two steps. First, using administrative data from Austria and an age-based regression discontinuity design, we show that an extension of UI eligibility by nine weeks increases the average reemployment wage by a statistically significant 0.5\%. We find that the UI effect on both unemployment durations and reemployment wages is larger for individuals with a high ex-ante likelihood of benefit exhaustion and for those laid off during local industry-specific downturns. Second, we show both theoretically and empirically that the UI effect on expected wage is determined by two offsetting forces: (i) agents on UI increase their reservation wages, which raises subsequent wages, but (ii) they also stay unemployed longer and thus experience a greater decrease in job opportunities, which reduces subsequent wages. Together, these results show that UI does have an economically significant impact on job quality consistent with theoretical predictions. Chapter 2 offers a dynamic view of unemployment to study the separation of workers from firms as well as their hiring. In my framework, layoffs stem from temporary wage rigidity and non-contactable productivity shocks. I show that the optimum allocation is realized when employers internalize not only the direct cost of layoff, i.e. expected UI benefits, but also two additional costs: (i) the uninsured cost of layoff (ii) the increase in unemployment rate due to lower effort from workers. Are an immigrant's decisions affected in real time by her home country's economy? Chapter 3 examines this question by exploiting exchange rate variations as exogenous price shocks to immigrants' budget constraints. I find that in response to a $10$ percent dollar appreciation, an immigrant decreases her earnings by $0.92$ percent, mainly by reducing hours worked. The exchange rate effect is greater for recent immigrants, married immigrants with absent spouses, Mexicans close to the border, and immigrants from countries with higher remittance flows. A neo-classical interpretation of these findings suggests that the income effect exceeds the cross-substitution effect. Remittance targets offer an alternative explanation.
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