The Reemployment Bonus Experiments: A Suggested Interpretation

The Reemployment Bonus Experiments: A Suggested Interpretation

December 15, 2000 | Walter Nicholson
The reemployment bonus experiments represent one of the most significant examples of randomly assigned changes in individual budget constraints since the 1970s income maintenance and health insurance experiments. This paper analyzes the results of these experiments from a theoretical microeconomics perspective, focusing on how they changed budget constraints and how these changes align with the broader literature on individual labor supply. The results are broadly consistent with this literature and suggest new research avenues. Two approaches have been used to model reemployment bonuses. One suggests that bonuses incentivize workers to lower their reservation wage, while another focuses on the opportunity cost of leisure during the qualification period. The author proposes an alternative approach, viewing bonuses as temporary wage increases, which offers insights into labor supply and other related topics. This approach aligns better with traditional search theory and clarifies the connection between bonuses and reemployment. The experiments showed that bonuses reduced UI weeks, with the Illinois experiment having the largest impact. However, the relationship between reduced UI weeks and increased employment was mixed. Take-up rates were low, and responses varied by subgroup. Women responded more significantly to bonuses than men, consistent with higher labor supply elasticities for women. Theoretical considerations suggest that temporary wage increases should have larger effects on labor supply than permanent ones. The results from the experiments support this, with estimated labor supply elasticities ranging from 0.22 to 0.29. These findings are consistent with broader labor supply literature, though the experiments' narrow focus may have obscured some results. The author concludes that the bonus experiments provide valuable insights into labor supply and policy design. However, the results are difficult to generalize due to the complexity of the experiments and the lack of explicit theoretical models. A more structural approach to analyzing the experiments could improve policy design and evaluation. The experiments highlight the importance of considering heterogeneity in responses and the need for more detailed theoretical models to better understand the effects of bonuses on labor supply and reemployment.The reemployment bonus experiments represent one of the most significant examples of randomly assigned changes in individual budget constraints since the 1970s income maintenance and health insurance experiments. This paper analyzes the results of these experiments from a theoretical microeconomics perspective, focusing on how they changed budget constraints and how these changes align with the broader literature on individual labor supply. The results are broadly consistent with this literature and suggest new research avenues. Two approaches have been used to model reemployment bonuses. One suggests that bonuses incentivize workers to lower their reservation wage, while another focuses on the opportunity cost of leisure during the qualification period. The author proposes an alternative approach, viewing bonuses as temporary wage increases, which offers insights into labor supply and other related topics. This approach aligns better with traditional search theory and clarifies the connection between bonuses and reemployment. The experiments showed that bonuses reduced UI weeks, with the Illinois experiment having the largest impact. However, the relationship between reduced UI weeks and increased employment was mixed. Take-up rates were low, and responses varied by subgroup. Women responded more significantly to bonuses than men, consistent with higher labor supply elasticities for women. Theoretical considerations suggest that temporary wage increases should have larger effects on labor supply than permanent ones. The results from the experiments support this, with estimated labor supply elasticities ranging from 0.22 to 0.29. These findings are consistent with broader labor supply literature, though the experiments' narrow focus may have obscured some results. The author concludes that the bonus experiments provide valuable insights into labor supply and policy design. However, the results are difficult to generalize due to the complexity of the experiments and the lack of explicit theoretical models. A more structural approach to analyzing the experiments could improve policy design and evaluation. The experiments highlight the importance of considering heterogeneity in responses and the need for more detailed theoretical models to better understand the effects of bonuses on labor supply and reemployment.
Reach us at info@study.space
Understanding American Economic Association