Jon Piqueras

Unemployment Insurance, Inequality of Opportunity, and Labor Market Conditions

This paper studies whether unemployment insurance should vary over the business cycle. I propose and empirically evaluate a framework to assess the optimal duration of unemployment benefits that accounts for differential selection of individuals into unemployment due to disparities in the availability of work opportunities. I derive sufficient statistics formulae showing that the optimal duration depends on the efficiency cost of providing insurance, the consumption insurance value, and the social preferences for redistribution between different types of unemployed. I examine how these components vary over the cycle by exploiting the large variation in unemployment rate over time and across regions in Spain between 2005 and 2017. To quantify the efficiency cost of providing insurance, I apply a regression discontinuity design using administrative data and show that the distortion induced by benefit extensions declines in recessions. To assess the insurance value, I use survey data on consumption and show that individuals experience larger drops in consumption upon job loss when the unemployment rate is high. To gauge the preferences for redistribution between different types of unemployed, I collect survey data and demonstrate that people are more favorable to provide benefits to individuals with higher willingness to work, and that the share of this type of unemployed increases in downturns. Taking into account all these forces, I find that optimal unemployment insurance should have been more generous at the peak of the Great Recession than in the preceding period. Furthermore, contrary to the conventional wisdom, my analysis reveals that the welfare gains of extending benefit duration coming from the social benefits are more countercyclical than the ones related to the costs, and so the optimal level of cyclicality is substantially underestimated in the existing literature.

The Asymmetric Effect of Wage Floors: A Natural Experiment with a Rising and Falling Minimum Wage

Exploiting a unique natural experiment, we show the asymmetric effects of a large increase and an equivalent subsequent decrease to a binding minimum wage. Wages in a leading low-wage industry increase as the minimum wage rises, but do not fall when it is lowered. This boost for low-wage workers' earnings is apparently permanent five years after the policy is revoked, providing novel evidence of hysteresis in wage setting from temporary labor policy. In the first year post repeal this is consistent with downward nominal wage rigidity. But, the elevated earnings persist even in high inflation times, contrary to the prediction from existing work that real wage reductions under high inflation should erode the nominal wage gap relative to unaffected firms. Our findings thus challenge the conventional view that inflation ``greases the wheels'' of the labor market in the face of downward nominal wage rigidity, and, demonstrate the value of even transitory labor market policy in achieving permanent gains for workers (play it while you got it).

Search effort and the minimum wage

I assess the impact of the minimum wage on the search effort of the unemployed. Using machine learning methods, and leveraging the richness of the American Time Use Survey (ATUS) together with the large sample size of the Current Population Survey (CPS), I build measures of search effort and exposure to the minimum wage for unemployed workers. I exploit 49 state-level minimum wage changes in the US over 1999-2019 in a stacked-event study design to examine whether the highly exposed unemployed change their search effort in response to the policy. I find that a 12% increase in the minimum wage leads to a 6.1% increase in search effort. Yet, the individuals increasing effort do not find jobs faster. Interpreting the estimates through the lens of a standard DMP model with search effort, I find that the observed effort increase should have raised employment by 4 p.p. ceteris paribus. However, market tightness declines in equilibrium so that the return per unit of effort in terms of job finding gets reduced, ultimately leading to an overall null employment effect. Moreover, this setup allows me to investigate the welfare impact of the policy in a transparent way, revealing that the minimum wage increases welfare for exposed individuals.