Assignment #7

The more I read about UI (unemployment insurance) the more I learn about how simple but unseen underlying incentives can cause a policy to work in opposition to its intention.  As a policy maker it would seem that helping people achieve financial stability by allocating money to them while they are suffering the financial stresses of unemployment is a humane and rational thing to do.  But what I have come to understand so far in my research is that government payments create dependency.  Simply giving people money destroys the incentive to make money on their own.  

  The title of the article, “Is Unemployment Insurance Addictive?,  is self explanatory as to the thesis of the argument.  The author uses research called “occurrence dependence” where he looks at whether using unemployment insurance in the past causes the unemployed to use the insurance more in the future, or simply put, is it addictive? Through using data and creating regression models he finds that there is a positive correlation between past and future claims of unemployment insurance. 

            Before reading this article I had not thought about unemployment insurance in terms of “occurrence dependence”.  In my thesis I focused on whether using unemployment insurance increases the duration of unemployment but not its affect of increasing future uses of UI. 

It also brought to light an interesting theory as to why this addiction might form.  The author said there is a stigma about unemployment insurance, but once an unemployed worker receives UI for the first time, the stigma goes away and they continue to use the insurance more frequently.  He also argues that when the unemployed use UI they learn more about the program and find the process of receiving UI to be very easy which gives them an incentive to use it more. 

The author’s regression line is different than mine because he is using the duration of UI as his dependent variable while I am looking at the duration of unemployment as my dependent variable.  He also made his regression an exponential one due to that fact that UI durations cannot be less than 0.  I am interested to see if this would work for my regression as well.   

Corak, Miles. 1993. Is unemployment insurance addictive? evidence from the benefit durations of repeat users. Industrial and Labor Relations Review 47 (1) (10): 62-72.