The Delivery Gap: How Administrative Frictions in Unemployment Insurance Shape Labor Market Outcomes

• In Event: Unemployment Insurance, Administrative Capacity, and Labor Market Outcomes

Abstract

How does benefit delivery — not just benefit generosity — shape labor market outcomes for unemployed workers? A large literature establishes that Unemployment Insurance (UI) creates a fundamental tradeoff: benefits extend nonemployment durations by relaxing liquidity constraints and enabling more selective job search, but longer unemployment spells generate scarring effects through duration dependence, reducing claimants' employability and match quality over time. The net welfare implications of this tradeoff depend critically on when during the unemployment spell liquidity is most binding. Recent evidence (Flamang and Kancherla, 2024) finds that liquidity shocks have the largest effects on job search and reemployment outcomes for claimants earliest in their spell, motivating a direct focus on the administrative processes related to first payment delivery.

I use administrative data from the California Employment Development Department (EDD) to examine how administrative frictions in the early UI lifecycle affect spell duration and subsequent labor market outcomes. First, I assemble a novel dataset on UI applications linked to the universe of UI claimants in CA. I use these data to characterize the distribution of delays between application filing and first benefit payment and document how these vary across claimant demographics, application type, and macroeconomic conditions. These descriptive findings establish that application-stage delays are widespread, systematically distributed, and concentrated in precisely the window prior evidence identifies as most consequential. Second, to estimate the causal effects of delay reductions and early-spell liquidity, I exploit EDD's phased 2015 rollout of UI Online — an online certifications portal made available to approximately 400,000 active claimants over ten weeks. The rollout substantially reduced payment processing times, with most UI Online claims paid within one day. I link UI claims to EDD's quarterly wage records and the QCEW and use the plausibly exogenous timing of claimants' access to UI Online to estimate effects on UI spell duration, post-UI job match quality, and long-run earnings trajectories. While the full dataset is currently being assembled, preliminary results indicate that faster payment delivery reduced reemployment rates, consistent with a duration dependence mechanism in which improved liquidity enables more selective job search. 

This paper makes two contributions. Descriptively, it provides the first systematic characterization of application-stage UI payment delays, opening a black box in the UI system. Causally, it offers new estimates of how administrative modernization affects the economic well-being of safety net participants.

Author

• Paul Lapinski, American University
  Presenting Author