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Working Paper

Optimal Unemployment Insurance Requirements

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.

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.