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Unemployment Insurance and State Economic Activity

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  • Won Lee Kyung
  • James Schmidt
  • George Rejda
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    Abstract

    The unemployment insurance (UI) system collects premiums from firms and provides temporary compensation to involuntarily unemployed workers. The system has traditionally been viewed as an automatic stabilizer for national and area economies. This paper examines the impacts that UI benefits and contributions have had upon general economic activity in California and Michigan, large states that have experienced episodes of moderate and high unemployment rates, respectively, during the past two decades. For each state, we prepare a multiequation model of the economy and impose constraints represented by cointegrating vectors. Impulse responses measuring the impact of UI benefits and contributions on the economies are obtained from the models. The strengths of the responses are assessed using significance tests based upon distributions that have been derived for models containing cointegrating vectors. The results indicate that UI benefits and contributions provide little impact of consequence upon general economic activity in the two states. [E24]

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    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 13 (1999)
    Issue (Month): 3 ()
    Pages: 77-95

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    Handle: RePEc:taf:intecj:v:13:y:1999:i:3:p:77-95

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    1. Schwert, G William, 1989. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(2), pages 147-59, April.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    3. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    4. Lutkepohl, Helmut, 1990. "Asymptotic Distributions of Impulse Response Functions and Forecast Error Variance Decompositions of Vector Autoregressive Models," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 116-25, February.
    5. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
    6. King, Robert G. & Plosser, Charles I. & Stock, James H. & Watson, Mark W., 1991. "Stochastic Trends and Economic Fluctuations," American Economic Review, American Economic Association, vol. 81(4), pages 819-40, September.
    7. Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
    8. George M. Von Furstenberg, 1976. "Stabilization characteristics of unemployment insurance," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 29(3), pages 363-376, April.
    9. Oaxaca, Ronald L. & Taylor, Carol A., 1986. "Simulating the impacts of economic programs on urban areas: The case of unemployment insurance benefits," Journal of Urban Economics, Elsevier, vol. 19(1), pages 23-46, January.
    10. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
    11. Shoesmith, Gary L., 1992. "Non-cointegration and causality: Implications for VAR modeling," International Journal of Forecasting, Elsevier, vol. 8(2), pages 187-199, October.
    12. Paul A. Anderson, 1979. "Help for the regional economic forecaster: vector autoregression," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum.
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