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Job insecurity, unemployment insurance and on-the-job search. Evidence from older American workers. (Gutierrez 2016)

Absence of conflict of interest.

Citation

Gutierrez, I. A. (2016). Job insecurity, unemployment insurance and on-the-job search. Evidence from older American workers. Labour Economics, 41, 228-245. doi:10.1016/j.labeco.2016.05.011

Highlights

  • The study examined the impact of the potential wage replacement rate through Unemployment Insurance (UI) on the probability of transitioning to non-employment.
  • The study used a nonexperimental design and data from the Health and Retirement Study (HRS) from 1996–2006 and 2010–2012 to identify workers who expected job loss during the baseline survey and who experienced job transitions by the follow-up survey two years later.
  • The study found no statistically significant relationships between potential wage replacement rates and transitions to non-employment.
  • The quality of causal evidence presented in this report is low because the analyses do not sufficiently account for other factors that might contribute to the estimated effects. This means we are not confident that the estimated effects are attributable to the potential wage replacement rate through UI; other factors are likely to have contributed.

Intervention Examined

Unemployment Insurance (UI)

Features of the Study

The author used a statistical model (an instrumental variable approach) to determine the effect of the potential replacement rate on non-employment. The potential replacement rate is the rate of lost earnings that UI benefits would cover, as determined by state-level policies on the nominal replacement rate as well as the maximum amount of weekly UI benefits an individual could receive in a year. The study included 10,440 employed men and women ages 50 to 62 from the HRS, a nationally representative survey.

Findings

Employment

  • The study found no statistically significant relationships between potential wage replacement rates and transitions to non-employment.

Considerations for Interpreting the Findings

The outcome of the analyses is the likelihood that an employed individual is looking for another job. Two key predictors of this likelihood are the subjective probability of job loss and the potential wage replacement rate. The author used two instrument variables for these two key predictors: (1) whether the respondent’s company downsized recently; and (2) the generosity of the state’s UI benefits. However, the variable of recent firm downsizing does not satisfy the exclusion restriction for the instrument variable, which requires that firm downsizing should only affect the job search and job transition through a respondent’s subjective assessment of the likelihood of job loss. Employees could foresee that a shrinking firm might offer slower wage growth than another firm, and thus start looking for other jobs with higher expected wage growth, even if the employees do not think they are likely to lose their job. Further, the author notes one reason why the analysis found no statistically significant impact on non-employment is that older workers are unlikely to lose their jobs.

Causal Evidence Rating

The quality of causal evidence presented in this report is low because the analyses do not sufficiently account for other factors that might contribute to the estimated effects. This means we are not confident that the estimated effects are attributable to potential wage replacement from UI, but other factors might also have contributed.

Reviewed by CLEAR

September 2019

Topic Area