In the United States, each state administers its own unemployment insurance (UI) program under guidelines established by federal law. Benefits are funded by payroll taxes on employers, and tax rates are an increasing function of previous layoff history. Across-state variation leads to significant differences in the maximum UI taxes faced by employers in different states, potentially distorting the behavior of multi-establishment firms. Leveraging state-level tax schedules and the existing locations of multi-establishment firms for identification, I test whether greater UI taxation has an effect on the location and labor demand of multi-state firms during economic downturns. I find evidence that during the Great Recession, multi-state firms were more likely to exit from states with higher relative UI tax costs, and were less likely to hire workers in high tax states during the recovery. This points to the potential for efficiency gains from moving to a more uniform federally mandated UI tax system.
Related publication:
Audrey Guo. "The Effects of State Business Taxes on Plant Closures: Evidence from Unemployment Insurance Taxation and Multi-Establishment Firms." The Review of Economics and Statistics (July 2021): 1–45.
