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The Displacement Effect of Reemployment Bonus Programs

Carl Davidson; Stephen A. Woodbury

W.E. Upjohn Institute for Employment Research

We develop a partial equilibrium matching model of the labor market in order to examine whether adoption of a reemployment bonus would displace workers not offered the bonus. We examine the displacement effect for (a) unemployment insurance (UI)-eligible workers who are offered but do not find a job in time to qualify for a bonus and (b) UI-ineligible workers who are never offered a bonus. The model predicts minimal displacement of the former group. But for the latter group, the model predicts an increase in unemployment duration of .2-.4 week and an increase in unemployment of up to 2 per thousand.

DOI

10.1086/298308

Volume

11 (4)

Pages

575-605

Language

en

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