Discussion Paper Series

Cameron, A. Colin; Gritz, R. Mark; and MaCurdy, Thomas. , "The Effects of Unemployment Compensation on the Unemployment of Youth." NLS Discussion Paper, Report: NLS 92-4

Objectives
This report examines the impact of unemployment insurance (UI) policies on the amount of unemployment youths experience between jobs. Specifically, the analysis focuses on determining how weekly benefit amounts and weeks of eligibility offered by UI programs influence three aspects of nonemployment activities: the total length of time spent in nonemployment, the fraction of this time reported as unemployment, and the likelihood that an individual collects UI during a nonemployment episode.

En route to the primary objective, we exploit the rich source of data provided by the National Longitudinal Surveys Youth cohort (NLSY) to pursue two intermediate goals concerned with developing a picture of youth's participation in the labor market and utilization of UI programs. First is the computation of a comprehensive summary of the weekly work and earnings experiences of youths, and the second is assessing the extent to which youths are eligible for UI and the degree to which they draw on UI entitlements. The aim is to identify two sets of patterns: differences across demographic characteristics and changes over the period (1979-84) covered by the data.

Findings
For men, the empirical results indicate that an individual who collects UI typically experiences a longer spell of nonemployment and reports a larger fraction of this spell as unemployment than a nonrecipient. In total, UI recipients report more weeks of unemployment before returning to jobs.

UI benefits alter individuals' activities through several routes. The effect of a rise in the weekly benefit amount paid by a program is to slightly increase recipiency and the fraction of a nonemployment spell listed as unemployment. This rise in weekly benefits has essentially no effect on either the length of nonemployment spells or on the number of weeks of unemployment, whether one considers the population at large or only the population of UI recipients.

An increase in the weeks of eligibility offered by a program induces only a relatively minor rise in the likelihood of recipiency, as is the case for an increase in weekly benefit amounts. However, in sharp contrast to the effects of weekly benefits, an extension of weeks of UI eligibility lengthens both nonemployment spells and the amount of unemployment that occurs between jobs both for UI recipients and for the population at large. This extension does not influence short durations of either nonemployment or unemployment, but it leads to an expansion of the longer durations with the highest durations being stretched out the most. In particular, the findings indicate that an extension of weeks of eligibility from 26 to 39 generates only about a 1 week lengthening of unemployment duration for the median individual, but unemployment lengthens by as much as 8 weeks for those persons experiencing the longer durations.

The findings summarized above for young men also apply for young women with two exceptions. First, while female UI recipients experience more unemployment that nonrecipients, there is ambiguity as to whether a similar relationship exists for women when comparing lengths of nonemployment spells. Second, the weekly benefit amount is not a factor in influencing women's experiences. In contrast to men, changes in weekly benefits have no effect of the fraction of a nonemployment spell reported as unemployment, nor do they affect the likelihood that a woman collects UI benefits. Whereas total UI benefits serve as the primary measure of UI entitlements determining UI recipiency status for men, the results for women indicate that only weeks of eligibility matter.

Copies of this and other papers in this series are available from BLS by contacting Rita Jain at Jain.Rita@bls.gov or at (202) 691 - 7405.

Last Modified Date: July 09, 2003