Implications of the Illinois Reemployment Bonus Experiments For Theories of Unemployment and Policy Design

Bruce D. Meyer

NBER Working Paper No. 2783
Issued in December 1988
NBER Program(s):Labor Studies

Reemployment bonus experiments offer large lump sum payments to unemployment insurance (UI) recipients who find a job quickly. Such experiments are underway or have been recently completed in four states. This paper analyzes the results from Illinois and discusses the implications of the experiments for theories of unemployment and policy design. I examine the hazard rate of exit from unemployment and find that it is significantly higher for the experimental groups, but only during the period of bonus eligibility. Both labor supply and search theories of unemployment are shown to suggest a rise in the reemployment hazard just before the end of bonus eligibility and to suggest larger effects of the fixed amount bonus for lower income groups. Only weak support is found for these hypotheses, which suggests limitations of the models of unemployment. Some modifications of the models are suggested. The experiments demonstrate the effects of economic incentives on job finding behavior but they do not show the desirability of a permanent reemployment bonus program. Evidence from another sample suggests that as many as half of those who received a reemployment bonus returned to their previous employer, so that a bonus program that pays people returning to their last employer would provide a strong encouragement to temporary layoffs. A discussion of UI claim filing behavior suggests that a permanent program could well increase the frequency or promptness of filing, thus reducing any financial advantages of a bonus program

download in pdf format
   (751 K)

download in djvu format
   (383 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w2783

Published: Journal of Labor Economics, 14, Jan 1996, pp 26-51.

Users who downloaded this paper also downloaded* these:
Watanabe, Watanabe, and Watanabe w7252 Tax Policy and Consumer Spending: Evidence from Japanese Fiscal Experiments
Katz w5679 Wage Subsidies for the Disadvantaged
Trussell and Wachter w1455 Estimating the Covariates of Historical Heights
Lopez-de-Silanes, Markusen, and Rutherford w4512 Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks
Blanchflower and Meyer w3746 A Longitudinal Analysis of Young Entrepreneurs in Australia and the United States
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us