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The Long-Term Effects of Unemployment Insurance Extensions on Employment

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  • Johannes F. Schmieder
  • Till M. von Wachter
  • Stefan Bender

Abstract

The majority of papers analyzing the employment effects of unemployment insurance (UI) benefit durations focuses on the duration of the first unemployment spell. In this paper, we make two contributions. First, we use a regression discontinuity design to analyze the long-term effects of extensions in UI durations. These estimates differ from standard estimates that they incorporate differences in UI benefit receipt and employment due to recurrent unemployment spells. Second, we derive a welfare formula of UI extensions that incorporates recurrent nonemployment spells. We find that accounting for nonemployment beyond the initial spell leads to a significant reduction in estimates of the nonemployment effect of UI extensions by about 25 percent. We show this effect is only partly explained by a mechanical effect due to finite follow-up durations, and mainly arises from a lower probability of days in nonemployment in months after end of the initial nonemployment spell.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17814.

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Date of creation: Feb 2012
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Publication status: published as Schmieder, Johannes F., Till von Wachter, and Stefan Bender. 2012. "The Long-Term Effects of UI Extensions on Employment." American Economic Review, 102(3): 514–19.
Handle: RePEc:nbr:nberwo:17814

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  1. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
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Cited by:
  1. Rafael Lalive & Camille Landais & Josef Zweimüller, 2013. "Market Externalities of Large Unemployment Insurance Extension Programs," CESifo Working Paper Series 4413, CESifo Group Munich.
  2. Kohara, Miki & Sasaki, Masaru & Machikita, Tomohiro, 2013. "Is longer unemployment rewarded with longer job tenure?," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 44-56.
  3. Thomas Le Barbanchon, 2012. "The Effect of the Potential Duration of Unemployment Benefits on Unemployment Exits to Work and Match Quality in France," Working Papers, Centre de Recherche en Economie et Statistique 2012-21, Centre de Recherche en Economie et Statistique.
  4. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," Working Papers halshs-00907807, HAL.
  5. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," AMSE Working Papers 1357, Aix-Marseille School of Economics, Marseille, France, revised 21 Nov 2013.

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