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State Unemployment Insurance Trust Solvency and Benefit Generosity
Author(s) -
Smith Daniel L.,
Wenger Jeffrey B.
Publication year - 2013
Publication title -
journal of policy analysis and management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.898
H-Index - 84
eISSN - 1520-6688
pISSN - 0276-8739
DOI - 10.1002/pam.21701
Subject(s) - generosity , unemployment , solvency , economics , panel data , legislature , population , demographic economics , actuarial science , labour economics , political science , finance , economic growth , econometrics , sociology , demography , law , market liquidity
This paper employs panel estimators with data on the 50 A merican states for the years 1963 to 2006 to test the relationship between U nemployment I nsurance ( UI ) trust fund solvency and UI benefit generosity. We find that both average and maximum weekly UI benefit amounts, as ratios to the average weekly wage, are higher in states and in years with more highly solvent trust funds. This result holds after controlling for state‐level unemployment rate, gross domestic product, population growth, legislative political ideology, partisan control of the executive and legislative branches, and gubernatorial election year across multiple specifications, including fixed‐effects and dynamic panel estimators. We propose a theory of moderate coupling as the causal mechanism, whereby UI program benefits and financing are directly related but are not as tightly linked as in other social insurance programs, such as M edicaid. The findings have important policy implications for the funding of states’ UI systems. As a consequence of moderate coupling, the countercyclicality of the UI program is dampened.