Do Unemployment Insurance Benefits Improve Match and Employer Quality? Evidence from Recent U.S. Recessions

Unemployment Insurance (UI) benefits have a moral hazard effect and a liquidity effect, withboth generating increases in unemployment spells but the latter increasing wages due to theability to find better matches or better jobs. Previous papers, however, find mixed evidence onthe impact of UI on wages. In this paper, we re-examine the effect of UI on wages in the U.S.and present novel evidence using LEHD data to examine the channels through which UIincreases earnings, including: (1) the quality of the match, (2) positive sorting of employers andemployees, and (3) the quality of the employer. We find that the increased UI generosity in theU.S. increased wages by both increasing the quality of the match as well as the quality of the jobobtained after the unemployment spell, though there is less evidence of improved sorting.Consistent with improvements in match and employer quality, we also find that the likelihood ofremaining on the job increases with UI generosity. Consistent with a liquidity effect on search,we also find that the effects on the quality of the match are larger for those who are more likelyto be liquidity constrained, including women, minorities, and the less educated