Effects of the unemployment insurance work test on long-term employment outcomes

The Washington Alternative Work Search experiment conducted in 1986-87 tested the effects of the unemployment insurance (UI) work test. The experiment randomly assigning new UI claimants to groups consisting of a standard work test, to a modified work test which was scheduled earlier, and to an honor system in which claimants were told to search actively for reemployment but were also told their benefits would be sent to them unless they told the UI agency that they had found a job or had stopped looking for work. By appending nine years of administrative wage records to the original data from the experiment, we are able to examine the long-term effects of the UI work test on employment outcomes, including earnings, employment, hours worked, and job match quality, measured as tenure with first post-claim employer. For UI claimants as a whole, we find that the work test had little influence, either positive or negative, on long-term post-claim outcomes. For permanent job losers, however, we find evidence that the work test had a positive effect on employment outcomes, resulting in shorter time to reemployment, higher earnings, and a longer duration of tenure with first post-claim employer. We also find that these claimants seem to marginally benefit from an earlier scheduling of the work test. For claimants on a temporary layoff, the work test resulted in less UI benefit payments and shorter unemployment durations, but made little difference for their employment outcomes. We conclude that, in addition to reducing moral hazard associated with UI, the work test (especially if scheduled early on) is an important policy for improving the long-term employment outcomes of permanent job losers.