Journal of Labor Economics Vol. 39 No. S2 2021

Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance

David S. Lee^1,2,3; Pauline Leung⁴; Christopher J. O’Leary⁵; Zhuan Pei⁴; Simon Quach²

¹ National Bureau of Economic Research · ² Princeton University · ³ Princeton Public Schools · ⁴ Cornell University · ⁵ W.E. Upjohn Institute for Employment Research

Abstract

Central to the welfare analysis of income transfer programs is the deadweight loss associated with possible reforms. To aid analytical tractability, its measurement typically requires specifying a simplified model of behavior. We employ a complementary “decomposition” approach that compares the behavioral and mechanical components of a policy’s total impact on the government budget to study the deadweight loss of two unemployment insurance policies. Experimental and quasi-experimental estimates using state administrative data show that increasing the weekly benefit is more efficient (with a fiscal externality of 53 cents per dollar of mechanical transferred income) than reducing the program’s implicit earnings tax.

DOI

10.1086/711594

Volume

39

Issue

S2

Pages

S455-S506

Language

en

Sources

openalex crossref

Cite

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