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Experience Rating as an Automatic Stabilizer

Author

Listed:
  • Mark Duggan
  • Audrey Guo
  • Andrew C. Johnston
Abstract
Unemployment-insurance taxes are experience rated, penalizing firms that dismiss workers. We examine whether experience rating serves as an automatic stabilizer in the labor market. Taking advantage of the variation in layoff penalties across states, we utilize detailed data on state tax schedules and assess whether firms are less responsive to labor-demand shocks when facing higher layoff penalties. Our findings show that average layoff penalties from UI reduce firm adjustments to negative shocks by 11%. This indicates that experience rating contributes to labor market stabilization. For example, during the Great Recession, experience rating preserved nearly a million jobs.

Suggested Citation

  • Mark Duggan & Audrey Guo & Andrew C. Johnston, 2023. "Experience Rating as an Automatic Stabilizer," Tax Policy and the Economy, University of Chicago Press, vol. 37(1), pages 109-133.
    • Handle: RePEc:ucp:tpolec:doi:10.1086/724354
    DOI: 10.1086/724354
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    References listed on IDEAS

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    1. Stéphane Auray & David L. Fuller, 2020. "Eligibility, experience rating, and unemployment insurance take‐up," Quantitative Economics, Econometric Society, vol. 11(3), pages 1059-1107, July.
    2. Marta Lachowska & Isaac Sorkin & Stephen A. Woodbury, 2022. "Firms and Unemployment Insurance Take-Up," Upjohn Working Papers 22-369, W.E. Upjohn Institute for Employment Research.
    3. Topel, Robert H, 1983. "On Layoffs and Unemployment Insurance," American Economic Review, American Economic Association, vol. 73(4), pages 541-559, September.
    4. Audrey Guo & Andrew C. Johnston, 2021. "The Finance of Unemployment Compensation and Its Consequences," Public Finance Review, , vol. 49(3), pages 392-434, May.
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    6. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-957, October.
    7. Mark Duggan & Audrey Guo & Andrew C. Johnston, 2022. "Would Broadening the UI Tax Base Help Low-Income Workers?," AEA Papers and Proceedings, American Economic Association, vol. 112, pages 107-111, May.
    8. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.
    9. Andrew C. Johnston, 2021. "Unemployment Insurance Taxes and Labor Demand: Quasi-Experimental Evidence from Administrative Data," American Economic Journal: Economic Policy, American Economic Association, vol. 13(1), pages 266-293, February.
    10. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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