UI Benefit Generosity and Labor Supply from 2002-2020

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• Department of Economics

This paper provides estimates of the effect of unemployment insurance benefits on labour supply outcomes over the business cycle using 20 years of administrative claims, earnings, and employer data from California. A regression kink design exploiting nonlinear benefit schedules provides experimental estimates of behavioural labour supply responses throughout the unemployment spell that are comparable over time. For a given unemployment duration, the behavioural effect of UI benefit levels on labour supply is unchanged over the business cycle from 2002 to 2019. However, due to increased coverage from extensions in benefit durations, the duration elasticity of UI benefits rises during recessions. The behavioural effect during the start of the COVID-19 pandemic is substantially lower at all weeks of the unemployment spell.