Magazine article Regulation

Unemployment Insurance

Magazine article Regulation

Unemployment Insurance

Article excerpt

"Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects" by Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, and Kurt Mitman. October 2013. NBER #19499.

Unemployment following the Great Recession has remained unusually high. One possible reason is the extension of unemployment benefits from their usual 26-week limit to a period as long as 99 weeks. The conventional wisdom is that such extensions have positive effects on the macroeconomy because they have very little effect on labor supply and also increase aggregate demand because unemployed workers have a large marginal propensity to consume any benefits they receive.

This view has been supported by low estimates of the effect of unemployment insurance extensions on labor supply. Economists have used the cross-sectional variation across states in extension initiation and duration to estimate the effect of benefit variation on the search behavior of the subset of the unemployed who receive benefits. For example, in a fall 2011 Brookings Papers on Economic Activity article, Berkeley economics professor Jesse Rothstein compared those unemployed who are eligible for unemployment insurance with those who are not, thus isolating the search behavior of those receiving benefits. He concluded that the increased duration of benefits has a very small effect on the duration of unemployment and concludes that only a small fraction of the increased unemployment in the Great Recession can be attributed to reduced worker job search effort. …

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