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Working Paper

Optimal Unemployment Insurance Requirements

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In the US, workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to stay longer in unemployment because low-paying jobs are not covered by UI. Since it mitigates moral hazard, the optimal UI design has a high monetary requirement.
Topics
Labor economics
Financial well-being
Public finance
03.07.2023ISSN 2573-7953 WP 22-10ROriginal Paper WP 22-10DOI 10.26509/frbc-wp-202210r
Keywords Unemployment Insurance, UI Eligibility, Optimal UI
JEL Classification Codes E24, E61, J65

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

de Souza, Gustavo, and André Victor D. Luduvice. 2023. “Optimal Unemployment Insurance Requirements.” Federal Reserve Bank of Cleveland, Working Paper No. 22-10R. https://doi.org/10.26509/frbc-wp-202210r