Employment Effects of the Unemployment Insurance Tax Base

I investigate the extent to which the low unemployment insurance (UI) tax base in the United States creates disincentives to hire low‐wage workers. Using data from the Current Population Survey and state variation in the UI tax base over 30 years, I show that a 10 percent nominal increase in the bas...

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Bibliographic Details
Published in:The Journal of human resources 2024-09, Vol.59 (5), p.1387-1424
Main Author: Huang, Po-Chun
Format: Article
Language:English
Subjects:
Adolescents
Child labor
College graduates
Disincentives
Employment
Indexing
Secondary schools
Tax rates
Taxation
Unemployment insurance
Workers
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Summary:I investigate the extent to which the low unemployment insurance (UI) tax base in the United States creates disincentives to hire low‐wage workers. Using data from the Current Population Survey and state variation in the UI tax base over 30 years, I show that a 10 percent nominal increase in the base raises the teenage employment rate by 1.2 percent. It raises teen/adult and high school/college graduate employment. Indexing the tax base increases the teenage employment rate by 6 percent. The erosion of the UI tax base has thus reduced the employment of low‐wage workers.
ISSN:0022-166X
1548-8004
DOI:10.3368/jhr.0719-10316R2