Job insecurity, unemployment insurance and on-the-job search. Evidence from older American workers

Abstract

I analyse how unemployment insurance (UI) affects on-the-job search among older workers in the US, allowing for job insecurity. Using a control function approach, I find that one-standard deviation in the potential replacement rate from UI (about 12.5 percentage points) discourages on-the-job search by 0.55 percentage points, thereby reducing the probability of starting a new job at a different employer. This average effect is small because UI does not affect the search behaviour of workers who do not believe to be at risk of job loss, the majority of the employed population over 50. In contrast, a one-standard deviation increase in the potential replacement rate reduces the probability of on-the-job-search by as much as 3.5 percentage points for workers who state a 90% probability of losing their jobs. I also find suggestive evidence that this effect decreases with wages, although the estimated effects across quartiles of the wage distribution are not statistically different from each other. I also find that UI discourages on-the-job search in similar magnitudes for men and women, although the effects are only statistically significant for men.