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The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment

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  • Lawrence F. Katz
  • Bruce D. Meyer

Abstract

This paper uses two data sets to examine the impact of the potential duration of unemployment insurance (UI) benefits on the duration of unemployment and the time pattern of the escape rate from unemployment in the United States. The first part of the empirical work uses a large sample of household heads to examine differences in the unemployment spell distributions of UI recipients and nonrecipients. Sharp increases in the rare of escape from unemployment both through recalls and new job acceptances are apparent for UI recipients around the time when benefits are likely to lapse. The absence of such spikes in the escape rate from unemployment for nonrecipients strongly suggests that the potential duration of UI benefits affects firm recall policies and workers' willingness to start new jobs. The second part of our empirical work uses administrative data to examine the effects of the level and length of UT benefits on the escape rate from unemployment of UI recipients. The results indicate that a one week increase in potential benefit duration increases the average duration of the unemployment spells of UI recipients by 0,16 to 0.20 weeks. The estimates also imply that policies that extend the potential duration of benefits increase the mean duration of unemployment by substantially more than policies with the same predicted impact on the total UI budget that raise the level of benefits while holding potential duration constant.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2741.

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Date of creation: Oct 1988
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Publication status: published as Journal of Public Economics, Vol. 41, pp. 45-72, (February 1990).
Handle: RePEc:nbr:nberwo:2741

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  1. Pissarides, Christopher A, 1982. "Job Search and the Duration of Layoff Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 595-612, November.
  2. Gary Solon, 1984. "Work Incentive Effects of Taxing Unemployment Benefits," NBER Working Papers 1260, National Bureau of Economic Research, Inc.
  3. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  4. Ham, John C & Rea, Samuel A, Jr, 1987. "Unemployment Insurance and Male Unemployment Duration in Canada," Journal of Labor Economics, University of Chicago Press, vol. 5(3), pages 325-53, July.
  5. Lancaster, Tony, 1985. "Generalised residuals and heterogeneous duration models : With applications to the Weilbull model," Journal of Econometrics, Elsevier, vol. 28(1), pages 155-169, April.
  6. Steven Shavell & Laurence Weiss, 1978. "The Optimal Payment of Unemployment Insurance Benefits over Time," Cowles Foundation Discussion Papers 503, Cowles Foundation for Research in Economics, Yale University.
  7. repec:fth:prinin:243 is not listed on IDEAS
  8. Rebecca Blank & David Card & Whitney Newey, 1988. "Recent Trends in Insured and Uninsured Unemployment: Is There an Explanation?," Working Papers 623, Princeton University, Department of Economics, Industrial Relations Section..
  9. Kenneth Burdett & Dale T. Mortensen, 1977. "Labor Supply Under Uncertainty," Discussion Papers 297, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Mathiowetz, Nancy A & Duncan, Greg J, 1988. "Out of Work, Out of Mind: Response Errors in Retrospective Reports of Unemployment," Journal of Business & Economic Statistics, American Statistical Association, vol. 6(2), pages 221-29, April.
  11. Atkinson, A. B. & Gomulka, J. & Micklewright, J. & Rau, N., 1984. "Unemployment benefit, duration and incentives in Britain : How robust is the evidence?," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 3-26.
  12. Narendranathan, W & Nickell, S & Stern, J, 1985. "Unemployment Benefits Revisited," Economic Journal, Royal Economic Society, vol. 95(378), pages 307-29, June.
  13. Ehrenberg, Ronald G & Oaxaca, Ronald L, 1976. "Unemployment Insurance, Duration of Unemployment, and Subsequent Wage Gain," American Economic Review, American Economic Association, vol. 66(5), pages 754-66, December.
  14. Burdett, Kenneth, 1979. "Unemployment Insurance Payments as a Search Subsidy: A Theoretical Analysis," Economic Inquiry, Western Economic Association International, vol. 17(3), pages 333-43, July.
  15. Kathleen P. Classen, 1977. "The effect of unemployment insurance on the duration of unemployment and subsequent earnings," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 438-444, July.
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  1. Michelle Malkin and Larry Katz
    by Robert in angry bear on 2009-08-04 09:56:00
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