Are Sufficient Statistics Necessary? Nonparametric Measurement of Deadweight Loss from Unemployment Insurance

Central to the welfare analysis of income transfer programs is deadweight loss associated with possible reforms. To aid analytical tractability, its measurement typically requires specifying a simplified model behavior. We employ complementary “decomposition” approach that compares behavioral and mechanical components policy’s total impact on government budget study two unemployment insurance policies. Experimental quasi-experimental estimates using state administrative data show increasing weekly benefit more efficient (with fiscal externality 53 cents per dollar transferred income) than reducing program’s implicit earnings tax.