Unemployment insurance take-up rates in an equilibrium search model

Abstract From 1989 to 2012, on average, 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. To understand the implications of these “unclaimed” benefits, we develop a directed search model with an endogenous UI take-up rate. In equilibrium, UI collectors have longer unemployment durations relative to non-collectors. The difference results from two forces, a consumption effect and a private information effect, as UI collection histories are unobservable. We characterize both effects analytically and quantitatively. With an endogenous take-up rate, the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI benefit level, relative to the standard model with a 100% take-up rate. The private information effect on non-collector job finding rates plays an important role in this result.