Industrial Relations Section
Louis A. Simpson International Bldg.
Princeton, NJ 08544
Institutional Affiliation: Princeton University
NBER Working Papers and Publications
|February 2019||Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance|
with David S. Lee, Pauline Leung, Christopher J. O'Leary, Zhuan Pei: w25574
Central to the welfare analysis of income transfer programs is the deadweight loss associated with possible reforms. To aid analytical tractability, its measurement typically requires specifying a simplified model of behavior. We employ a complementary “decomposition” approach that compares the behavioral and mechanical components of a policy’s total impact on the government budget to study the deadweight loss of two unemployment insurance policies. Experimental and quasi-experimental estimates using state administrative data show that increasing the weekly benefit is more efficient (with a fiscal externality of 53 cents per dollar of mechanical transferred income) than reducing the program’s implicit earnings tax.