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Assessing the Stabilizing Effects of Unemployment Benefit Extensions

Author

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  • Alexey Gorn
  • Antonella Trigari

Abstract

We study the stabilizing role of benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for a stabilizing aggregate demand channel and a destabilizing labor market channel. We characterize each channel analytically and find that aggregate demand effects quantitatively prevail in the United States. When feeding in estimated shocks, the model tracks unemployment in the two most recent downturns. We find that extensions lowered unemployment by a maximum of 0.36 pp in the Great Recession, while the joint stabilizing effect of extensions and benefit compensation peaked at 1.12 pp in the pandemic.

Suggested Citation

  • Alexey Gorn & Antonella Trigari, 2024. "Assessing the Stabilizing Effects of Unemployment Benefit Extensions," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 387-440, January.
    • Handle: RePEc:aea:aejmac:v:16:y:2024:i:1:p:387-440
    DOI: 10.1257/mac.20210385
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    Cited by:

    1. Dengler, Thomas & Gehrke, Britta & Zessner-Spitzenberg, Leopold, 2024. "Short-Time Work and Precautionary Savings," ECON WPS - Working Papers in Economic Theory and Policy 02/2024, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
    2. Rujiwattanapong, W. Similan, 2025. "Unemployment dynamics and endogenous unemployment insurance extensions," European Economic Review, Elsevier, vol. 178(C).
    3. Stephane Auray & Aurelien Eyquem, 2024. "Optimal Unemployment Insurance in a THANK Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 53, pages 173-193, July.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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