The Benefits of Unemployment Insurance For Marginally Attached Workers

Existing research consistently finds that UI benefits delay job finding with limited effects on job quality, but focuses on changes in unemployment insurance (UI) generosity while holding fixed access to re-employment services. Using employer-employee matched data from Washington State and a fuzzy regression discontinuity design around the eligibility threshold for UI, we find that benefit receipt minimally delays re-employment but substantially improves labor market outcomes. UI increases cumulative hours worked by approximately 15 full-time weeks and earnings by $14,000 in the two years following job loss, representing 37 percent and 50 percent increases, respectively. These gains are driven by improved job quality, as recipients experience longer tenure and higher wages with their next employer. Effects are larger for workers living near public employment offices, suggesting that access to re-employment services enhances search productivity. Expanding UI access by lowering the eligibility threshold is much more cost-effective than raising benefit levels or extending potential duration, as workers benefit from more stable, higher-paying re-employment that partially offsets its cost.