I investigate whether the effects of UI extensions are different for workers exposed to higher levels of local labor market concentration, a potential source of employer market power. I exploit measurement error in state unemployment rates that led to quasi-random assignment of UI durations in the U.S. during the Great Recession. Using matched employer-employee data from the Longitudinal Employer-Household Dynamics program, I find that UI extensions lengthen nonemployment durations by one week and cause economically meaningful but not statistically significant increases in earnings. The UI-earnings effect is significantly lower at higher levels of concentration, while there is no difference in the UI-duration effect. The lower UI-earnings effect is driven by the extremes of the distribution of concentration. My results suggest that match improvements from UI are attenuated at higher levels of concentration.
Table 5: Nonemployment Duration – Measurement Error Approach In each column, the dependent variable is the length of nonemployment spells measured in quarters (top-coded at 12). UI error is the difference in potential UI benefit duration using the real-time and revised state unemployment rate in the quarter before the nonemployment spell onset (measured in quarters). Local labor market fixed effects are commuting zone-by-industry (4-digit NAICS level) fixed effects. Worker characteristics include fixed effects for gender, education, race and ethnicity, age, total labor market experience, and prior job tenure. Sample sizes and estimated values have been rounded for disclosure avoidance. Standard errors clustered at the state level in parentheses: significant at *10%, **5%, and ***1%.
Unemployment insurance (UI) extensions slightly lengthen unemployment spells. The positive UI-earnings effect is attenuated at higher levels of concentration.