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

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Author Info

  • Kurt Mitman

    (University of Pennsylvania)

  • Iourii Manovskii

    (University of Pennsylvania)

  • Fatih Karahan

    (Federal Reserve Bank of New York)

  • Marcus Hagedorn

    (Institute of Advanced Studies)

Abstract

We exploit policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. We find large effects of unemployment benefit extensions on unemployment. In fact, the 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 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 the job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 1260.

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Date of creation: 2013
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Handle: RePEc:red:sed013:1260

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References

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  1. 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.
  2. Dube, Andrajit & Lester, T. William & Reich, Michael, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Institute for Research on Labor and Employment, Working Paper Series qt86w5m90m, Institute of Industrial Relations, UC Berkeley.
  3. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," NBER Working Papers 17534, National Bureau of Economic Research, Inc.
  4. 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, vol. 106(4), pages 667-705, August.
  5. David Card & Raj Chetty & Andrea Weber, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," NBER Working Papers 12893, National Bureau of Economic Research, Inc.
  6. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  7. Casey B. Mulligan, 2010. "Foreclosures, Enforcement, and Collections under the Federal Mortgage Modification Guidelines," NBER Working Papers 15777, National Bureau of Economic Research, Inc.
  8. Donald W.K. Andrews, 2003. "Cross-section Regression with Common Shocks," Cowles Foundation Discussion Papers 1428, Cowles Foundation for Research in Economics, Yale University.
  9. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  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 2012-017, Federal Reserve Bank of St. Louis.
  12. Jed Kolko & David Neumark & Marisol Cuellar Mejia, 2011. "What Do Business Climate Indexes Teach Us About State Policy and Economic Growth?," NBER Working Papers 16968, National Bureau of Economic Research, Inc.
  13. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  14. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  15. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
  16. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
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Cited by:
  1. Loukas Karabarbounis & Gabriel Chodorow-Reich, 2014. "The Cyclicality of the Opportunity Cost of Employment," 2014 Meeting Papers 88, Society for Economic Dynamics.
  2. 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.
  3. 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.
  4. Rendon, Silvio & Quella, Núria, 2013. "Behind the Great Recession: Job Search and Housing Decisions," IZA Discussion Papers 7773, Institute for the Study of Labor (IZA).
  5. Paul Gomme & Damba Lkhagvasuren, 2011. "The Cyclicality of Search Intensity in a Competitive Search Model," Working Papers 11003, Concordia University, Department of Economics.
  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. Lalive, Rafael & Landais, Camille & Zweimüller, Josef, 2013. "Market Externalities of Large Unemployment Insurance Extension Programs," CEPR Discussion Papers 9673, C.E.P.R. Discussion Papers.
  8. 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 qt3hk7s3fw, Institute of Industrial Relations, UC Berkeley.
  9. Robert E. Hall, 2014. "High Discounts and High Unemployment," NBER Working Papers 19871, National Bureau of Economic Research, Inc.
  10. William Dupor, 2013. "Creating jobs via the 2009 recovery act: state medicaid grants compared to broadly-directed spending," Working Papers 2013-035, Federal Reserve Bank of St. Louis.
  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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