Hostname: page-component-745bb68f8f-lrblm Total loading time: 0 Render date: 2025-01-31T06:20:18.973Z Has data issue: false hasContentIssue false
  • English
  • Français

Extension of unemployment benefits and changes in job search margins

Published online by Cambridge University Press:  27 June 2022

Omid Mousavi
Omid Mousavi*
Affiliation:
Department of Economics, University of Melbourne, 111 Barry Street, Carlton, VIC 3010, Australia
*
Email: omidmousavi79@gmail.com
Get access Rights & Permissions [Opens in a new window]

Abstract

Unemployment insurance benefits are often extended during recessions. Existing research shows that this policy increases the unemployment rate and the duration of unemployment. But less is known about why these changes occur. I construct a job search model with an endogenous participation decision to quantify the contributions of (i) search effort, (ii) job selectivity, and (iii) labor market participation, to changes in unemployment outcomes. In a model calibrated to the US economy, I show that the increased participation accounts for a large fraction of the increase in the unemployment rate following a permanent extension of benefits. This finding indicates the importance of changes in the participation decision of workers facing extended benefits for the unemployment rate—a mechanism that is understudied and frequently overlooked in the quantitative labor market research exploring the impact of UI policies.

Keywords

Unemployment insurancelabor marketjob searchlabor market participation
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 5 , July 2023 , pp. 1424 - 1454
Copyright
© The Author(s), 2022. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

The author would like to thank Lawrence Uren, Chris Edmond, May Li, Yusuf Mercan, John P Haisken-DeNew, Bruce Preston, Chris Skeels, the seminar participants at the University of Melbourne, the University of New South Wales, as well as the associate editor, and the two anonymous referees for helpful comments and discussions. All errors are mine.

References

Abadie, A., Diamond, A. and Hainmueller, J. (2010) Synthetic control methods for comparative case Studies: Estimating the effect of California’s tobacco control program. Journal of the American Statistical Association 105(490), 493–505.CrossRefGoogle Scholar
Abadie, A. and Gardeazabal, J. (2003) The economic costs of conflict: A case study of the basque country. American Economic Review 93(1), 113–132.CrossRefGoogle Scholar
Abowd, J. M. and Zellner, A. (1985) Estimating gross labor-Force flows. Journal of Business & Economic Statistics 3(3), 254–283.Google Scholar
Aguiar, M. and Hurst, E. (2005) Consumption versus expenditure. Journal of Political Economy 113(5), 919–948.CrossRefGoogle Scholar
Amaral, P. and Ice, J. (2014) Reassessing the effects of extending unemployment insurance benefits. Economic Commentary 2014-23.CrossRefGoogle Scholar
Andolfatto, D. and Gomme, P. (1996) Unemployment Insurance and Labor-market Activity in Canada. In: Carnegie-Rochester Conference Series on Public Policy, vol. 44, pp. 47–82. Elsevier.CrossRefGoogle Scholar
Auray, S., Fuller, D. L. and Lkhagvasuren, D. (2019) Unemployment insurance take-up rates in an equilibrium search model. European Economic Review 112, 1–31.CrossRefGoogle Scholar
Autor, D. H. S. (2014) Education, and the rise of earnings inequality among the “Other 99 percent”. Science 344(6186), 843–851.CrossRefGoogle Scholar
Autor, D. H., Katz, L. F. and Kearney, M. S. (2008) Trends in US wage inequality. Revising the Revisionists. The Review of Economics and Statistics 90(2), 300–323.Google Scholar
Birinci, S. and See, K. (2019) How should unemployment insurance vary over the business cycle? FRB St. Louis Working Paper 2019-022.Google Scholar
Braxton, J. C., Herkenhoff, K. F. and Phillips, G. M. (2020). Can the unemployed borrow? Implications for public insurance, Technical report, National Bureau of Economic Research.CrossRefGoogle Scholar
Card, D., Chetty, R. and Weber, A. (2007) Cash-on-hand and competing models of intertemporal behavior: New evidence from the labor market. The Quarterly Journal of Economics 122(4), 1511–1560.CrossRefGoogle Scholar
Card, D. and Levine, P. B. (2000) Extended benefits and the duration of UI spells: Evidence from the new Jersey extended benefit program. Journal of Public Economics 78(1), 107–138.CrossRefGoogle Scholar
Chodorow-Reich, G., Coglianese, J. and Karabarbounis, L. (2018) The macro effects of unemployment benefit extensions: A measurement error approach. The Quarterly Journal of Economics.CrossRefGoogle Scholar
Coglianese, J. (2015) Do unemployment insurance extensions reduce employment? Role of macro effects. Federal Reserve Bank of New York Staff Reports 646.Google Scholar
Dieterle, S., Bartalotti, O. and Brummet, Q. (2018). Revisiting the effects of unemployment insurance extensions on unemployment: A measurement error-Corrected regression discontinuity approach.CrossRefGoogle Scholar
Elsby, M. W., Hobijn, B. and Şahin, A. (2015) On the importance of the participation margin for labor market fluctuations. Journal of Monetary Economics 72(3), 64–82.CrossRefGoogle Scholar
Elsby, M. W., Hobijn, B., Şahin, A. and Valletta, R. G. (2011) The labor market in the great recession—An update to September 2011. Brookings Papers on Economic Activity 2011(2), 353–384.CrossRefGoogle Scholar
Farber, H. S., Rothstein, J. and Valletta, R. G. (2015) The effect of extended unemployment insurance benefits: Evidence from the 2012-2013 phase-out. American Economic Review 105(5), 171–176.CrossRefGoogle Scholar
Farber, H. S. and Valletta, R. G. (2015) Do extended unemployment benefits lengthen unemployment spells? Evidence from recent cycles in the US labor market. Journal of Human Resources 50(4), 873–909.CrossRefGoogle Scholar
Fujita, S. (2010). Effects of extended unemployment insurance benefits: Evidence from the monthly CPS.CrossRefGoogle Scholar
Fujita, S. and et al. (2011) Effects of Extended Unemployment Insurance Benefits: Evidence from the Monthly CPS, Federal Reserve Bank of Philadelphia Working Paper, pp. 10–35.Google Scholar
Fujita, S. and Moscarini, G. (2017) Recall and unemployment. American Economic Review 107(12), 3875–3916.CrossRefGoogle Scholar
Garibaldi, P. and Wasmer, E. (2005) Equilibrium search unemployment, endogenous participation, and labor market flows. Journal of the European Economic Association 3(4), 851–882.CrossRefGoogle Scholar
Gruber, J. (1997) The consumption smoothing benefits of unemployment insurance. The American Economic Review 87(1), 192–205.Google Scholar
Hagedorn, M., Karahan, F., Manovskii, I. and Mitman, K. (2015). Unemployment benefits and unemployment in the great recession: The role of macro effects, Technical report, National Bureau of Economic Research.Google Scholar
Hall, R. E. (2013). Some Observations on Hagedorn, Karahan, Manovskii, and Mitman, “Unemployment benefits and unemployment in the great reces sion: The role of macro effects”.Google Scholar
Hamermesh, D. S., (1977) Jobless Pay and the Economy, vol. 29. Johns Hopkins University Press.Google Scholar
Hornstein, A. (2012) Accounting for unemployment: The long and short of it, Available at SSRN 2191168.CrossRefGoogle Scholar
Johnston, A. C. and Mas, A. (2018) Potential unemployment insurance duration and labor supply: The individual and market-Level response to a benefit cut. Journal of Political Economy 126(6), 2480–2522.CrossRefGoogle Scholar
Katz, L. F., (1986) Layoffs, Recall and the Duration of Unemployment .CrossRefGoogle Scholar
Katz, L. F. and Meyer, B. D. (1990) The impact of the potential duration of unemployment benefits on the duration of unemployment. Journal of Public Economics 41(1), 45–72.CrossRefGoogle Scholar
Kroft, K., Lange, F., Notowidigdo, M. J. and Katz, L. F. (2016) Long-term unemployment and the great recession: The role of composition, duration dependence, and nonparticipation. Journal of Labor Economics 34(S1), S7–S54.CrossRefGoogle Scholar
Lalive, R. (2008) How do extended benefits affect unemployment duration? A regression discontinuity approach. Journal of Econometrics 142(2), 785–806.CrossRefGoogle Scholar
Ljungqvist, L. and Sargent, T. J. (1998) The european unemployment dilemma. Journal of Political Economy 106(3), 514–550.CrossRefGoogle Scholar
Ljungqvist, L. and Sargent, T. J. (2008) Two questions about european unemployment. Econometrica 76(1), 1–29.CrossRefGoogle Scholar
Machin, S. and Manning, A. (1999) The causes and consequences of long term unemployment in Europe. Handbook of Labor Economics 3(246), 3085–3139.CrossRefGoogle Scholar
Marinescu, I. (2017) The general equilibrium impacts of unemployment insurance: Evidence from a large online job board. Journal of Public Economics 150(3), 14–29.CrossRefGoogle Scholar
Meyer, B. D. (1990) Unemployment insurance and unemployment spells. Econometrica 58(4), 757–782.CrossRefGoogle Scholar
Moffitt, R. (1985) Unemployment insurance and the distribution of unemployment spells. Journal of Econometrics 28(1), 85–101.CrossRefGoogle Scholar
Mortensen, D. T. (1977) Unemployment insurance and job search decisions. ILR Review 30(4), 505–517.CrossRefGoogle Scholar
Mortensen, D. T. and Pissarides, C. A. (1994) Job creation and job destruction in the theory of unemployment. The Review of Economic Studies 61(3), 397–415.CrossRefGoogle Scholar
Nachman, D. C. (1975) Risk aversion, impatience, and optimal timing decisions. Journal of Economic Theory 11(2), 196–246.CrossRefGoogle Scholar
Nakajima, M. (2012) A quantitative analysis of unemployment benefit extensions. Journal of Monetary Economics 59(7), 686–702.CrossRefGoogle Scholar
Nekoei, A. and Weber, A. (2017) Does extending unemployment benefits improve job quality? American Economic Review 107(2), 527–561.CrossRefGoogle Scholar
Pissarides, C. A. (1974) Risk, job search, and income distribution. Journal of Political Economy 82(6), 1255–1267.CrossRefGoogle Scholar
Pries, M. and Rogerson, R. (2009) Search frictions and labor market participation. European Economic Review 53(5), 568–587.CrossRefGoogle Scholar
Rothstein, J. (2011). Unemployment insurance and job search in the great recession, Technical report, National Bureau of Economic Research.CrossRefGoogle Scholar
Rujiwattanapong, W. S. (2016). Long-term unemployment dynamics and unemployment insurance extensions.Google Scholar
Schmieder, J. F., von Wachter, T. and Bender, S. (2016) The effect of unemployment benefits and nonemployment durations on wages. American Economic Review 106(3), 739–777.CrossRefGoogle Scholar
Schwartz, J. (2013) Do temporary extensions to unemployment insurance benefits matter? The effects of the US standby extended benefit program. Applied Economics 45(9), 1167–1183.CrossRefGoogle Scholar
Stephens, M. Jr (2004) Job loss expectations, realizations, and household consumption behavior. Review of Economics and Statistics 86(1), 253–269.CrossRefGoogle Scholar
Valletta, R. G. (2014) Recent extensions of US unemployment benefits: Search responses in alternative labor market states. IZA Journal of Labor Policy 3(1), 1–25.CrossRefGoogle Scholar