A quantitative analysis of relaxing UI eligibility requirements

Abstract

From 1985 to 2019, administrative data indicates that 22% of unemployment insurance (UI) applicants were denied benefits annually due to eligibility requirements. This paper develops a quantitative equilibrium search model that incorporates realistic UI application processes and examines workers’ UI decisions and employment outcomes. Using this model, I analyze the role of eligibility requirements and the implications of incorporating them into policy evaluations. Relaxing earnings requirements increases take-up rates and generates a 4% welfare gain, benefiting low-income workers the most. In contrast, eliminating the separation requirement yields the highest welfare gain but also raises unemployment, highlighting the moral hazard effects of UI expansion. Lastly, a counterfactual analysis shows that ignoring UI eligibility leads to misleading predictions, overstating take-up rates and understating precautionary savings, underscoring the need to properly account for eligibility requirements in policy evaluations.