Unemployment insurance benefits and income smoothing

Jeffrey Ng, Tharindra Ranasinghe, Guifeng Shi, Holly Yang

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

Labor unemployment insurance reduces unemployment concerns. We argue that these benefits moderate incentives to smooth earnings to reduce employees’ concerns about unemployment risk. Using exogenous variations in unemployment insurance benefits, we find evidence consistent with this argument. We also find that the link between unemployment insurance benefits and income smoothing is stronger when there is higher unemployment risk and when the firm is likely to employ more low-wage workers, who find unemployment insurance benefits especially useful. Our paper contributes to the literature by showing that public policy decisions such as unemployment insurance have significant, albeit probably unintended, externalities on corporate financial reporting.

Original languageEnglish
Pages (from-to)15-30
Number of pages16
JournalJournal of Accounting and Public Policy
Volume38
Issue number1
DOIs
Publication statusPublished - 1 Jan 2019

Keywords

  • Compensating wage differentials
  • Income smoothing
  • Unemployment insurance
  • Unemployment risk

ASJC Scopus subject areas

  • Accounting
  • Sociology and Political Science

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