Racial Inequality in the U.S. Unemployment Insurance System

The decentralized US unemployment insurance (UI) system lets states decide on key rules. Decentralization could help states efficiently adapt to local economic conditions, but it could also generate racial inequality. We build a novel nationally representative dataset of UI claimants and document a 18:3% gap in UI entitlements between Black and white claimants. After accounting for claimants’ work history, we show that state rules differences alone create a 8:4% racial gap. Yet, our welfare analysis indicates that state rules differences are inefficient. Reducing UI rule disparities across states would thus enhance both racial equity and economic efficiency.