reemployment bonuses

Author
Abstract

Reemployment bonus experiments offer large lump sum payments to
unemployment insurance (UI) recipients who find a job quickly. Such
experiments are underway or have been recently completed in four states. This
paper analyzes the results from Illinois and discusses the implications of the
experiments for theories of unemployment and policy design. I examine the
hazard rate of exit from unemployment and find that it is significantly higher
for the experimental groups, but only during the period of bonus eligibility.
Both labor supply and search theories of unemployment are shown to suggest a
rise in the reemployment hazard just before the end of bonus eligibility and
to suggest larger effects of the fixed amount bonus for lower income groups.
Only weak support is found for these hypotheses, which suggests limitations of
the models of unemployment. Some modifications of the models are suggested.
The experiments demonstrate the effects of economic incentives on job
finding behavior but they do not show the desirability of a permanent
reemployment bonus program. Evidence from another sample suggests that as
many as half of those who received a reemployment bonus returned to their
previous employer, so that a bonus program that pays people returning to their
last employer would provide a strong encouragement to temporary layoffs. A
discussion of UI claim filing behavior suggests that a permanent program could
well increase the frequency or promptness of filing, thus reducing any
financial advantages of a bonus program.

Year of Publication
1988
Number
242
Date Published
11/1988
Publication Language
eng
Citation Key
National Bureau of Economic Research No. 2783, December 1988.
Meyer, B. (1988). Implications of the Illinois Reemployment Bonus Experiments for Theories of Unemployment and Policy Design. Retrieved from http://arks.princeton.edu/ark:/88435/dsp011r66j113m (Original work published 11/1988AD)
Working Papers
Abstract

This paper assesses the ability of a simple search—theoretic
model to explain the results of two controlled reemployment bonus
experiments. The availability of two independent experiments
with substantially different treatments allows for a rigorous
test of the model. Parameters of the model are estimated by
minimizing the distance between the observed and predicted
aggregate response in each experiment, then cross-validated using
the observed and predicted treatment response from the other
experiment. The model is unable to predict an effect as large as
that observed in one of the experiments. In addition, the model
cannot explain the degree of individual—specific wage variability
found in the data. The relative success of models with and
without variable search intensity is also considered, but the
statistical procedures cannot distinguish between them.

Year of Publication
1989
Number
257
Date Published
09/1989
Publication Language
eng
Citation Key
Eastern Economic Journal, Vol 19, No. 2, Spring 1993
Levine, P. (1989). Testing Search Theory with Reemployment Bonus Experiments: Cross-Validation of Results from New Jersey and Illinois. Retrieved from http://arks.princeton.edu/ark:/88435/dsp01q524jn776 (Original work published 09/1989AD)
Working Papers