Unemployment insurance (UI) helps workers smooth their consumption after employment loss, but may also diminish their incentive to quickly find new jobs, thereby lengthening spells of unemployment and raising the aggregate unemployment rate. Less appreciated is the effect that UI has on geographic mobility and the quality of matches formed by workers and firms. UI may reduce match quality by delaying job search and prolonging the period over which work skills atrophy, but it could also improve match quality by discouraging easy-to-find low-quality matches and financing more difficult job searches. In the latter case, these searches could generate matches in other states that result in better-paying jobs. Understanding this match quality effect, as well as implications for migration, is important for policymakers who must decide how generous to make UI and how to structure its rules (e.g., some extended UI benefits are currently not portable across states, which may have undesirable effects). In addition to mattering for individual workers’ wages and employment, match quality effects matter for UI finances and overall U.S. labor market flexibility, both topics of considerable policy interest in recent years.
To reuse content from Urban Institute, visit copyright.com, search for the publications, choose from a list of licenses, and complete the transaction.