AMONG workers who are laid off from their previous jobs, more than 70 percent collect benefit payments from the unemployment insurance (UI) system.' These benefits are widely asserted to reduce the rate at which unemployed individuals find new jobs, so that measured unemployment is increased by unemployment insurance. A large body of empirical evidence now exists that shows this effect on the duration of unemployment spells.2 Far less attention-both in policy debate and in research-has been paid to the fact that the unemployment insurance system encourages persons to become unemployed. In this paper, I focus on the empirical structure and the effects of these incentives. The results show that unem-