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A quantitative analysis of unemployment benefit extensions

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  • Makoto Nakajima

Abstract

This paper measures the effect of extensions of unemployment insurance (UI) benefits on the unemployment rate using a calibrated structural model that features job search and consumption-saving decision, skill depreciation, UI eligibility, and UI benefit extensions that capture what has happened during the current downturn. The author finds that the extensions of UI benefits contributed to an increase in the unemployment rate by 1.2 percentage points, which is about a quarter of an observed increase during the current downturn (a 5.1 percentage point increase from 4.8 percent at the end of 2007 to 9.9 percent in the fall of 2009). Among the remaining 3.9 percentage points, 2.4 percentage points are due to the large increase in the separation rate, while the staggering job-finding probability contributes 1.4 percentage points. The last extension in December 2010 moderately slows down the recovery of the unemployment rate. Specifically, the model indicates that the last extension keeps the unemployment rate higher by up to 0.4 percentage point during 2011.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-8.

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Date of creation: 2011
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Handle: RePEc:fip:fedpwp:11-8

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Keywords: Unemployment insurance ; Unemployment;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The impact of the extension of unemployment insurance benefits in the US
    by Economic Logician in Economic Logic on 2011-04-01 14:03:00
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Cited by:
  1. Mukoyama, Toshihiko, 2013. "Understanding the welfare effects of unemployment insurance policy in general equilibrium," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 347-368.
  2. Stanislav Rabinovich & Kurt Mitman, 2011. "Pro-cyclical Unemployment Benefits? Optimal Policy in an Equilibrium Business Cycle Model," 2011 Meeting Papers 1247, Society for Economic Dynamics.
  3. David Howell, Bert M. Azizoglu, 2011. "Unemployment Benefits and Work Incentives: The U.S. Labor Market in the Great Recession," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2011-7, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  4. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin & Robert G. Valletta, 2011. "The labor market in the Great Recession: an update," Working Paper Series 2011-29, Federal Reserve Bank of San Francisco.
  5. Nie, Jun & Fang, Lei, 2014. "Human capital dynamics and the U.S. labor market," Research Working Paper RWP 13-10, Federal Reserve Bank of Kansas City.
  6. Guler, Bulent & Taskin, Temel, 2013. "Does unemployment insurance crowd out home production?," European Economic Review, Elsevier, vol. 62(C), pages 1-16.
  7. Bart Hobijn & Aysegül Sahin, 2012. "Beveridge curve shifts across countries since the Great Recession," Working Paper Series 2012-24, Federal Reserve Bank of San Francisco.
  8. Krause, Michael U. & Uhlig, Harald, 2011. "Transitions in the German labor market: Structure and crisis," Discussion Paper Series 1: Economic Studies 2011,34, Deutsche Bundesbank, Research Centre.
  9. David R. Howell & Bert M. Azizoglu, 2011. "Unemployment Benefits and Work Incentives: The U.S. Labor Market in the Great Recession (revised)," Working Papers wp257_revised, Political Economy Research Institute, University of Massachusetts at Amherst.
  10. Stéphane Auray & David L. Fuller & damba Lkhagvasuren, 2013. "Unemployment Insurance Take-up Rate"s in an Equilibrium Search Model," Working Papers 2013-12, Centre de Recherche en Economie et Statistique.
  11. Michael W.L. Elsby & Bart Hobijn & Aysegül Sahin, 2013. "On the importance of the participation margin for market fluctuations," Working Paper Series 2013-05, Federal Reserve Bank of San Francisco.
  12. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.

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