Temporary Layoffs in the U.S. Unemployment Insurance System : A Comparison of Two Experience Rating Methods

This paper presents a comparison of temporary layoff behavior caused by the two most common methods of experience rating in the U.S. Unemployment Insurance system, the reserve ratio and the benefit ratio methods. Differences in layoff paths arise from different adjustment processes. Under the former, layoff rates adjust gradually to their optimal levels, whereas under the latter, layoff rates adjust instantaneously. This leads to important differences in average layoff rates. However, neither method is judged to be superior in all circumstances