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Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects

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  • Marcus Hagedorn
  • Fatih Karahan
  • Iourii Manovskii
  • Kurt Mitman

Abstract

We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed -- the micro effect -- we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19499.

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Date of creation: Oct 2013
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Handle: RePEc:nbr:nberwo:19499

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References

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  1. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  2. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
  3. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(4), pages 1120-1155, April.
  4. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, Elsevier, vol. 28(1), pages 85-101, April.
  5. Donald W. K. Andrews, 2005. "Cross-Section Regression with Common Shocks," Econometrica, Econometric Society, Econometric Society, vol. 73(5), pages 1551-1585, 09.
  6. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 701-752.
  7. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(4), pages 667-705, August.
  8. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 143-213.
  9. Jed Kolko & David Neumark & Marisol Cuellar Mejia, 2013. "What Do Business Climate Indexes Teach Us About State Policy And Economic Growth?," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 53(2), pages 220-255, 05.
  10. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  11. Kyle F. Herkenhoff & Lee Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers, Federal Reserve Bank of St. Louis 2012-017, Federal Reserve Bank of St. Louis.
  12. David Card & Raj Chetty & Andrea Weber, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," American Economic Review, American Economic Association, American Economic Association, vol. 97(2), pages 113-118, May.
  13. Casey B. Mulligan, 2010. "Foreclosures, Enforcement, and Collections under the Federal Mortgage Modification Guidelines," NBER Working Papers 15777, National Bureau of Economic Research, Inc.
  14. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
  15. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 50-65, March.
  16. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
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Cited by:
  1. Silvio Rendon & Nuria Quella, 2013. "Behind the Great Recession: Job Search and Housing Decisions," Department of Economics Working Papers, Stony Brook University, Department of Economics 13-03, Stony Brook University, Department of Economics.
  2. Gabriel Chodorow-Reich & Loukas Karabarbounis, 2013. "The Cyclicality of the Opportunity Cost of Employment," NBER Working Papers 19678, National Bureau of Economic Research, Inc.
  3. Lalive, Rafael & Landais, Camille & Zweimüller, Josef, 2013. "Market Externalities of Large Unemployment Insurance Extension Programs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9673, C.E.P.R. Discussion Papers.
  4. William Dupor, 2013. "Creating jobs via the 2009 recovery act: state medicaid grants compared to broadly-directed spending," Working Papers, Federal Reserve Bank of St. Louis 2013-035, Federal Reserve Bank of St. Louis.
  5. Allegretto, Sylvia & Dube, Arindrajit & Reich, Michael & Zipperer, Ben, 2013. "Credible Research Designs for Minimum Wage Studies," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt3hk7s3fw, Institute of Industrial Relations, UC Berkeley.
  6. Robert E. Hall, 2014. "Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis," NBER Chapters, in: NBER Macroeconomics Annual 2014, Volume 29 National Bureau of Economic Research, Inc.
  7. Robert E. Hall, 2014. "Quantifying the Lasting Harm to the U.S. Economy from the Financial Crisis," NBER Working Papers 20183, National Bureau of Economic Research, Inc.
  8. Julien Albertini & Arthur Poirier, 2014. "Unemployment benefits extensions at the zero lower bound on nominal interest rate," SFB 649 Discussion Papers SFB649DP2014-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  9. Paul Gomme & Damba Lkhagvasuren, 2013. "The Cyclicality of Search Intensity in a Competitive Search Model," Working Papers, Concordia University, Department of Economics 13002, Concordia University, Department of Economics, revised Sep 2013.
  10. Robert E. Hall, 2014. "High Discounts and High Unemployment," NBER Working Papers 19871, National Bureau of Economic Research, Inc.
  11. Arash Nekoei & Andrea Weber, 2014. "Does Extending Unemployment Benefits Improve Job Quality?," NRN working papers 2014-04, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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