UI Benefit Generosity and Labor Supply from 2002-2020

This paper provides estimates of the effect of unemployment insurance benefits on labor supply outcomes over the business cycle using 20 years of administrative claims and earnings data from California. A regression kink design exploiting nonlinear benefit schedules provides experimental estimates of behavioral labor supply responses throughout the unemployment spell that are comparable over time. For a given unemployment duration, the behavioral effect of UI benefit levels on labor supply is unchanged over the business cycle from 2002 to 2019. However, due to increased coverage from extensions in benefit durations, the duration elasticity of UI benefits rises during recessions. The behavioral effect during the start of the COVID-19 pandemic is substantially lower at all weeks of the unemployment spell.