Health, Labor and Development Seminar - Patrick Arni (University of Bristol)
Unemployment Insurance and Learning: Evidence from Reservation Wages (joint with Yanos Zylberberg)
The impact of unemployment insurance on job match quality is ambiguous.
Insurance allows job seekers to select job offers carefully (a selectivity effect).
However, choosier individuals remain unemployed for longer and job offers
might become less frequent or generous with unemployment duration. Using
unique data combining reservation wages of job seekers with extensive register
data and exogenous variation in the generosity of unemployment insurance,
we quantify the selectivity effect (or reservation wage effect) and show that it
sharply differs across job seekers with different initial priors. Unexperienced
job seekers |with noisy priors| strongly adjust their initial expectations
but revise them downwards along the unemployment spell. We show in a
quantitative model that uninformed job seekers use insurance to learn about
employment prospects. The model rationalizes the differential response of
job seekers to the generosity of benefits and the ambiguous findings of the
empirical literature on match quality and the size of the duration effect.