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Working Papers, No. 2022-45, October 2022 Crossref
Optimal Unemployment Insurance Requirements

(Revised March 2023)

In the U.S., workers must satisfy two requirements to receive unemployment insurance (UI): a tenure requirement of a minimum work spell and a monetary requirement of past minimum earnings. Using discontinuity of UI rules at state borders, we find that the monetary requirement decreases the number of employers and the share of part-time workers, while the tenure requirement has the opposite effect. In a quantitative model, the monetary requirement induces workers to stay longer in unemployment because low-paying jobs are not covered by UI. Since it mitigates moral hazard, the optimal UI design has a high monetary requirement.


Working papers are not edited, and all opinions and errors are the responsibility of the author(s). The views expressed do not necessarily reflect the views of the Federal Reserve Bank of Chicago or the Federal Reserve System.

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