The Immediate Hardship of Unemployment: Evidence from the US Unemployment Insurance System. Issue 1 (January 2017)

• Record Type: Journal Article
• Authors: Stater, Mark; Wenger, Jeffrey B
• Is Part Of: Eastern economic journal. Volume 43:Issue 1(2017)
• Page Start: 17
• Page End: 36
• Publication Date: 2017-01
• Subjects: reservation wages -- unemployment duration -- unemployment insurance -- job search -- instrumental variables -- J64 -- J65 -- J68; Economics -- Periodicals; 330
• DOI: 10.1057/eej.2015.22
• Languages: English
• ISSNs: 0094-5056

Abstract

Abstract We examine how the reservation wage varies with the waiting time to apply for unemployment benefits. We find that the waiting time has a negative effect on the reservation wage, suggesting that unemployment generates significant and immediate harm for the unemployed. Our results are unique in that they are based on short-term, incomplete spells of unemployment that are precisely measured in weeks. We address the endogeneity of the waiting time using instrumental variables associated with errors in the unemployment insurance (UI) claim, and note that our estimates are likely a lower bound for the welfare declines experienced by the unemployed.