Hostname: page-component-586b7cd67f-tf8b9 Total loading time: 0 Render date: 2024-11-24T07:59:15.988Z Has data issue: false hasContentIssue false
  • English
  • Français

EFFECTS OF EXTENDED UNEMPLOYMENT INSURANCE BENEFITS ON LABOR DYNAMICS

Published online by Cambridge University Press:  14 January 2015

Miquel Faig ,
Min Zhang  and
Shiny Zhang
Miquel Faig*
Affiliation:
University of Toronto
Min Zhang
Affiliation:
Shanghai University of Finance and Economics and Key Laboratory of Mathematical Economics (SUFE), Ministry of Education
Shiny Zhang
Affiliation:
University of Toronto
*
Address correspondence to: Miquel Faig, University of Toronto, 150 St. George Street, Toronto, Ontario, M5S 3G7, Canada; e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

We calculate that the extension of unemployment insurance benefits during downturns has significantly increased the variability of unemployment and vacancies in the United States. Taking this into account reduces the value of leisure necessary to match the wide labor market business cycles experienced in the United States using the Mortensen--Pissarides model. For this calculation, we analyze a version of the model where unemployment insurance benefits not only expire but must be earned with prior employment. With these features, we can calibrate the model to be consistent with unemployment responding strongly to productivity shocks and mildly to changes in unemployment insurance policies. Our preferred calibration predicts that the standard deviation of unemployment since 1945 would have fallen by around 37% if there had not been programs extending unemployment benefits during recessions. We also find that the enactment of the Emergency Unemployment Compensation program in 2008 increased the unemployment rate by 0.5 percentage points.

Keywords

UnemploymentVacanciesUnemployment InsuranceBenefit ExtensionsSearch and Matching
Type
Articles
Information
Macroeconomic Dynamics , Volume 20 , Issue 5 , July 2016 , pp. 1174 - 1195
Copyright
Copyright © Cambridge University Press 2015 

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.)

References

REFERENCES

Aaronson, Daniel, Mazumder, Bhashkar, and Schechter, Shani (2010) What is behind the rise in long-term unemployment? Economic Perspectives (Federal Reserve Bank of Chicago) 34, 28–51.Google Scholar
Anderson, Patricia M. and Meyer, Bruce D. (1994) The Effects of Unemployment Insurance Taxes and Benefits on Layoffs Using Firm and Individual Data. NBER working paper 4960.Google Scholar
Anderson, Patricia M. and Meyer, Bruce D. (1997) Unemployment insurance takeup rates and the after-tax value of benefits. Quarterly Journal of Economics 112, 913–937.CrossRefGoogle Scholar
Atkinson, Anthony B. and Micklewright, John (1991) Unemployment compensation and labor market transitions: A critical review. Journal of Economic Literature 29, 1679–1727.Google Scholar
Blank, Rebecca M. and Card, David E. (1991) Recent trends in eligible and ineligible unemployment: Is there an explanation? Quarterly Journal of Economics 106, 1157–1189.Google Scholar
Burda, Michael (1988) Wait unemployment in Europe. Economic Policy 7, 391–425.Google Scholar
Card, David E. and Riddell, W. Craig (1993) A comparative analysis of unemployment in Canada and the United States. In Card, David E. and Freeman, Richard B. (eds.), Small Differences That Matter: Labor Markets and Income Maintenance in Canada and the United States, pp. 149–190. Chicago: University of Chicago Press.Google Scholar
Farber, Henry S. and Valletta, Robert G. (2013) Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the United States Labor Market. NBER working paper 2013-09.Google Scholar
Fujita, Shigeru (2011) Effects of Extended Unemployment Insurance Benefits: Evidence from the Monthly CPS. Federal Reserve Bank of Philadephia working paper 10-35/R.Google Scholar
Hagedorn, Marcus and Manovskii, Iourii (2008) The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review 98, 1692–1706.Google Scholar
Hall, Robert E. (2005) Employment fluctuations with equilibriuma wage stickiness. American Economic Review 95, 50–65.Google Scholar
Hall, Robert E. and Milgrom, Paul R. (2008) The limited influence of unemployment on the wage bargain. American Economic Review 98, 1653–1674.Google Scholar
Hansen, Gary D. and İmrohoroğlu, Ayşe (1992) The role of unemployment insurance in an economy with liquidity constraints and moral hazard. Journal of Political Economy 100, 118–142.Google Scholar
Mazumder, Bhashkar (2011) How Did Unemployment Insurance Extensions Affect the Unemployment Rate in 2008–10? Federal Reserve Bank of Chicago economic letter 285.Google Scholar
Meyer, Bruce D. (1990) Unemployment insurance and unemployment spells. Econometrica 58, 757–782.Google Scholar
Meyer, Bruce D. and Mok, Wallace K.C. (2007) Quasi-experimental Evidence on the Effects of Unemployment Insurance from New York State. NBER working paper 12865.CrossRefGoogle Scholar
Moffitt, Robert (1985) Unemployment insurance and the distribution of unemployment spells. Journal of Econometrics 28, 85–101.Google Scholar
Moffitt, Robert and Nicholson, Walter (1982) The effect of unemployment insurance on unemployment: The case of federal supplemental benefits. Review of Economics and Statistics 64, 1–11.Google Scholar
Mortensen, Dale T. and Nagypál, Eva (2007) More on unemployment and vacancy fluctuations. Review of Economic Dynamics 10, 327–347.Google Scholar
Moyen, Stéphane and Stähler, Nikolai (2014) Unemployment and the business cycle: Should benefit entitlement duration react to the cycle? Macroeconomic Dynamics 18, 497–525.Google Scholar
Nakajima, Makoto (2012) A quantitative analysis of unemployment benefit extensions. Journal of Monetary Economics 59, 686–702.CrossRefGoogle Scholar
Osberg, Lars and Phipps, Shelley (1995) Income Distributional Implications of Unemployment Insurance and Social Assistance in the 1990s: A Micro-simulation Approach. Publication IN-AH-223E-11-95, Human Resources Development Canada.Google Scholar
Pissarides, Christopher A. (1986) Unemployment and vacancies in Britain. Economic Policy 1, 499–559.Google Scholar
Rothstein, Jesse (2011) Unemployment insurance and job search in the Great Recession. Brookings Papers on Economic Activity (Fall), 143–210.Google Scholar
Shimer, Robert (2005) The cyclical behavior of equilibrium unemployment and vacancies. American Economic Review 95, 25–49.Google Scholar
Sider, Hal (1985) Unemployment duration and incidence: 1968–82. American Economic Review 75, 461–472.Google Scholar
Silva, José Ignacio and Toledo, Manuel (2009) Labor turnover costs and the cyclical behavior of vacancies and unemployment. Macroeconomic Dynamics 13, 76–96.Google Scholar
Valletta, Robert and Kuang, Katherine (2010) Extended Unemployment and UI Benefits. Federal Reserve Bank of San Francisco economic letter, Article 2010–2012.Google Scholar
Zhang, Min (2008) Cyclical behavior of unemployment and job vacancies: A comparison between Canada and the United States. The Berkeley Electronic Journal of Macroeconomics (Topics) 8, Article 27.Google Scholar
Zhang, Min and Faig, Miquel (2012) Labor market cycles, unemployment insurance eligibility, and moral hazard. Review of Economic Dynamics 15, 41–56.Google Scholar