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Title: The Welfare Effects of Extending Unemployment Benefits: Evidence from Re-employment and Unemployment Transfers
Authors: 黃柏鈞
Huang, Po Chun
Yang, Tzu-Ting
Contributors: 經濟系
Keywords: Extending Unemployment Benefits;Re-employment Bonus;Marginal Rate of Substitution;Behavioral Cost;Regression Discontinuity (Kink) Design
Date: 2021-10
Issue Date: 2022-04-11 13:23:39 (UTC+8)
Abstract: This paper investigates the welfare effects of extending unemployment benefits by comparing thesearch effort responses to income transfers when employed (i.e. re-employment bonus) and unemployed(i.e. extended benefits). Specifically, we use administrative data on the universe of unemployment spellsin Taiwan from 2001 to 2011 and evaluate effects of providing a re-employment bonus and extendingunemployment benefits. Our results suggest that the provision of re-employment bonus increases job-finding hazards and results in the positive fiscal externality. The behavioral costs per New TaiwaneseDollar (NTD) of initial spending on bonuses is−0.61. In contrast, extending unemployment benefitsreduces the rate of unemployment exit and generates the negative fiscal externality. We integrate theestimated policy effects with a search model with liquidity constraints to identify the value of extendingunemployment benefits captured by the marginal rate of substitution (MRS) between consumption whenunemployed and employed. We find that the estimated MRS of extending benefits is around 1.5 to 2.5— the marginal value of transfers when unemployed is about two times larger than that when employed.Finally, the marginal value of public fund for extending UI benefits is between 1.3 and 2, suggesting thewelfare gain from benefit extension is larger than its welfare cost by more than 30%.
Relation: Journal of Public Economics, Volume 202, 104500
Data Type: article
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