The Immediate Hardship of Unemployment: Evidence from the U.S. Unemployment Insurance Program

33 Pages Posted: 7 Oct 2011 Last revised: 18 Oct 2013

See all articles by Mark Stater

Mark Stater

Trinity College (Hartford CT)

Jeffrey B. Wenger

RAND Corporation; American University - School of Public Affairs

Date Written: June 7, 2013

Abstract

Using a random sample of U.S. unemployment insurance (UI) applicants from 2002-09, we find that unemployment duration (as measured by the time spent waiting to apply for benefits) has a negative and nonlinear effect on reservation wages, suggesting job search is a nonstationary process characterized by declining welfare even in the very early stages of unemployment. Using UI administrative variables as instruments to address the endogeneity of the waiting time to apply, we find that the reservation wage falls more rapidly for women than for men, for blacks than for whites, and for those who were discharged for cause than for those who voluntarily quit. These differential effects suggest that unemployment may exacerbate the earnings inequality we have witnessed over the last decade. Our results are unique in that they are based on short-term, incomplete spells of unemployment that are very precisely measured in weeks.

Keywords: reservation wages, unemployment duration, unemployment insurance

JEL Classification: J64, J65, J68

Suggested Citation

Stater, Mark and Wenger, Jeffrey B., The Immediate Hardship of Unemployment: Evidence from the U.S. Unemployment Insurance Program (June 7, 2013). Available at SSRN: https://ssrn.com/abstract=1940453 or http://dx.doi.org/10.2139/ssrn.1940453

Mark Stater

Trinity College (Hartford CT) ( email )

300 Summit Street
Hartford, CT 06106
United States

Jeffrey B. Wenger (Contact Author)

RAND Corporation ( email )

1776 Main Street
Santa Monica, CA
United States
310 393 0411 (Phone)

American University - School of Public Affairs ( email )

Washington, DC 20016
United States

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