Labor unemployment insurance and firms’ future performance

The purpose of this paper is to investigate the association between unemployment insurance (UI) benefits and firms’ future performance as well as the association between UI benefits and volatility of firms’ future performance.

Quantitative analyses are used to perform empirical testing, and the variables in this study have been selected from previous literature. Empirical data consists of UI benefits data published from 2003 to 2012 on the US Department of Labor website, accounting data from Compustat, and stock return data from CRSP.

Unemployment benefits are positively associated with firms’ future earnings and cash flows. Also, unemployment benefits are negatively associated with volatility of firms’ future earnings and cash flows. Finally, the positive association between unemployment benefits and firms’ future performance is more pronounced for firms with larger changes in labor force, and the negative association between unemployment benefits and volatility of firms’ future performance is more pronounced for firms with higher labor force volatility and capital structure volatility.

To the extent that other correlated omitted variables exist, the readers are asked to interpret the findings in this paper with caution.

This study contributes to prior literature on labor economics, finance, and accounting. The findings may be of interest to academic researchers and policy makers.