UI generosity raises wages for all worker types
A Federal Reserve Bank of Cleveland working paper estimates the effects of unemployment insurance generosity on wages. It finds similar, modestly positive elasticities across new hires, job changers, and continuously employed workers.
UI's broad wage impact
The paper uses public-use data from the Current Population Survey to estimate the effects of changes in unemployment insurance (UI) generosity.
It finds similar, modestly positive elasticities across all groups of workers: new hires from unemployment, job changers, and continuously employed workers.
For likely UI-eligible new hires, the elasticity is 0.13 for 2005–2024, with a larger 0.21 pre-pandemic (2005–2019) and smaller 0.04 during/after the pandemic (2020–2024).
Remarkably similar effects are found for workers not personally eligible for UI, suggesting important spillover effects or broader labor market changes.
These similarities are robust across specifications and subgroups.
Beyond direct beneficiaries
The study fills a gap in the literature by estimating UI effects and spillovers within a cohesive framework, using variation in UI generosity from 2005–2024.
It also examines other labor market outcomes, finding that increased UI generosity modestly reduces hiring from unemployment and job-to-job transitions, while substantially reducing labor force exit.
It increases hiring of new labor force entrants and non-participants.
Posted wages also increase with UI generosity, with similar elasticities to realized wages, though distributional effects differ.
Complex interplay revealed
This research significantly advances understanding of UI's widespread impact on wage determination, extending beyond direct beneficiaries.
It highlights a complex interplay between UI, wage posting, and bargaining, especially for workers with ambiguous UI eligibility.
The study confirms UI's stimulus role, but also reveals how other pandemic-era programs may alter its wage sensitivity.