Unemployment Compensation and Episodes of Nonemployment

Abstract

This paper examines the influence of unemployment insurance (UI) on the length of nonemployment spells experienced by young workers. The analysis introduces a flexible duration model to estimate the effects of the weekly benefit amount and weeks of eligibility on the amount of time spent between jobs by men, distinguishing between the experiences of UI and non-UI recipients. The empirical findings suggest three conclusions: (1) UI recipients experience longer spells of nonemployment than their non-UI recipient counterparts, at least up to the point of exhaustion of UI benefits; (2) the level of the weekly benefit amount does not significantly affect the length of nonemployment spells; and (3) increasing the number of weeks of eligibility offered by a UI program leads to longer episodes of nonemployment.

This project was funded by the US Department of Labor, Bureau of Labor Statistics, Washington DC 20210, under contract number J-9-J-7-0092, and by NSF Grant SES-8513453. Opinions stated in this document do not necessarily represent the official position or policy of the US Department of Labor. We thank David Card for generously providing us with a data set that he collected on extended UI benefits which we utilize in constructing some of our variables. We also gratefully acknowledge the contributions of Cindy Ambler who provided us with unpublished data from the US Department of Labor, and of Bart Hamilton who provided expert assistance on all aspects of the project. The paper was greatly improved based on comments from three anonymous referees and from Julie Anderson, whose contributions are appreciated.