What Have We Learned from the Illinois Reemployment Bonus Experiment?

This article analyzes an experimental program that offered payments to unemployment insurance (UI) recipients who found a job quickly. The experiment provided exogenous differences in individual incentives which I use to test labor supply and search theories of unemployment. I examine predictions about the timing of exits from unemployment and the effect of the fixed-amount bonus on different wage level groups. I also argue that the experimental evidence does not show the desirability of a permanent program. A permanent program would sharply increase the compensation for short UI spells, likely increasing the claims rate and possibly increasing unemployment.