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Reservation Benefits: Assessing Job Acceptance Impacts of Increased UI Payments

System Working Paper 20-10 | Published October 2, 2020

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Author

Nicolas Petrosky-Nadeau Federal Reserve Bank of San Francisco

Reservation Benefits: Assessing Job Acceptance Impacts of Increased UI Payments

Abstract

Job acceptance decisions weigh the value of a job against remaining unemployed. A reservation level of benefit payments exists in this dynamic decision problem at which an individual is indifferent between accepting and refusing an offer. This reservation benefit is a simple statistic summarizing the decision problem conditional on the believed state of the labor market and the weeks of Unemployment Insurance (UI) compensation remaining. Estimating the reservation benefit for a wide range of US workers suggests few would turn down an offer to return to work at the previous wage under the CARES Act expanded UI payments.