The empirical evidence on unemployment spell durations suggests that workers who leave unemployment earlier (that is, find or take a job sooner) have no higher post-unemployment wages than do workers who leave unemployment later. This result could be interpreted as evidence that the quality of the job match does not improve as the unemployment spell grows longer.
a. What does this interpretation of the evidence imply about the moral hazard costs of UI?
b. An alternative explanation for this evidence is that workers with longer unemployment spells are less qualified than are workers with shorter unemployment spells. How could you empirically distinguish between this explanation and the explanation put forth in (a)?