Unemployment Insurance Benefit Changes in New York
Introduction
Unemployment insurance in the United States is administered on a state-by-state basis, with funding coming from both state and federal sources, along with contributions from payroll taxes paid by workers and firms. Both the amount of benefits and eligibility requirements vary by state. Generally speaking, benefits are available to workers who have lost their jobs for reasons outside of their control.
Meyer and Mok (2007) use a difference-in-differences design to study the impact of an unexpected increase in benefits for a subset of UI claimants in New York.
Le Barbanchon et. al. (2024) draw upon the estimates from Meyer and Mok (2007) to compute the MVPF of a marginal change to UI benefit levels. The calculation builds upon the work of Schmieder and Von Wachter (2016) and Hendren and Sprung-Keyser (2020) but uses an alternate value for the coefficient of relative risk aversion.
MVPF = 1.0
Net Cost
The net cost is estimated as $1 of additional UI benefit plus the fiscal externalities from reduced search effort for a new job. Reduced search effort means people will be covered by UI for longer, leading to more total UI payouts. In addition, longer periods of non-employment lead to a fiscal externality through reduced income taxes.
The paper uses a calculation from Schmieder and Von Wachter (2016) to get a fiscal externality of $0.31 and a net government cost of $1.31.
Willingness to Pay
The willingness to pay for $1 of additional UI benefits is estimated as
to capture that individuals are willing to pay more than $1 to the extent to which they are risk averse. This is measured by the coefficient of relative risk aversion, gamma, and the extent to which they experience a consumption drop upon unemployment. The paper assumes a coefficient of relative risk aversion of 4 and an 8.5% estimate of consumption drop at job loss from Hendren (2017). This leads to a willingness to pay of $1 + 4*$0.085 = $1.34.
MVPF Summary
With a willingness to pay of $1.34 and a net government cost of $1.31, this leads to an MVPF of 1.02.
Le Barbanchon et. al. (2024) also use alternate measures of the fiscal externality in Schmieder and Von Wachter (2016) to compute additional measures of the MVPF. A higher fiscal externality estimate of .81 leads to an MVPF of .74 and a lower fiscal externality estimate of .16 leads to an MVPF of 1.15. These alternate fiscal externalities correspond with lower and higher estimates of the elasticity of unemployment duration with respect to benefit levels found in Meyer and Mok (2007).
The estimates used to calculate this MVPF may have been updated in a more recent working or published version of the paper.
References
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006
Le Barbanchon, Thomas, Johannes Schmieder, and Andrea Weber (2024).“Chapter 6 – Job search, unemployment insurance, and active labor market policies.” Handbook of Labor Economics, 5: 435-580. DOI: https://doi.org/10.1016/bs.heslab.2024.11.006
Meyer, Bruce D. and Wallace K. C. Mok (2007). “Quasi-Experimental Evidence on the Effects of Unemployment Insurance from New York State,” Working Paper 12865, National Bureau of Economic Research. DOI: https://doi.org/10.3386/w12865
Schmieder, Johannes F. and Till Von Wachter (2016). “The Effects of Unemployment Insurance Benefits: New Evidence and Interpretation.” Annual Review of Economics, 547-581. DOI: https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080614-115758
Policy Features
- Category
- Social Insurance
- Sub-Category
- Unemp. Ins.
- Beneficiary Type(s)
- Adults
- Average Age
- 41
- Average Income
- 20732
- Country of Implementation
- United States
- Year of Implementation
- 1989
- Empirical Method
- Difference in Differences
- Research Type
- Secondary
- Peer Reviewed
- Yes
- MVPF Publication Link
- doi.org/10.1016/bs.heslab.2024.11.006