23 May
14:00
How Does Potential Unemployment Insurance Benefit Duration Affect Re-employment Timing and Wages?
Recent papers use models of job search to interpret quasi-experiments with heterogeneity in order to understand the effects of unemployment insurance and potential benefit duration (PBD), but disagree about key findings. We argue that amending this approach with analyses that let the data speak without restrictions yields insights into policy relevant parameters and the mechanisms behind effects that do not depend on the interpretative lens and assumptions of a model. The data also casts doubt on key assumptions of common models. We first investigate what we can (not) learn from (quasiexperiments with two interdependent outcomes using a model-free framework that allows for unrestricted heterogeneity. Our discussion shows that one cannot separate direct effects of PBD on wages from indirect effects through duration, but methods to examine their presence are key to understand the channels behind wage effects. We then re-examine the effects of longer PBD in Schmieder, von Wachter and Bender (2016). We first analyze the effects of PBD that quasi-randomization identifies. Duration effects of PBD almost exclusively prolong a few long spells, which helps to explain differences between studies. Dynamic selection into reemployment timing is non-monotonic, but does not change with PBD at short durations so that dynamic treatment effects are identified at these short durations. For wage effects of PBD, we find the conditions under which LATEs of PBD on wages are informative about consequences of PBD extensions and hence useful for policy to hold. We then examine what the data can say about channels and mechanisms behind wage effects. Using dynamic treatment effects and mediation analyses, we find PBD to affect wages directly. In consequence, the effect of duration on wages is not identified and we find at most limited evidence of its relevance. That wage loss operates through the firm fixed effect and not through duration speaks against individual-based causes such as skill depreciation or bargaining. The negative direct effect we find contradicts key assumptions of common models of job search unless there are positive effects on non-wage outcomes for which we find only limited evidence.