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Reassessing the Effects of Extending Unemployment Insurance Benefits

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To deal with the high level of unemployment during the Great Recession, lawmakers extended the availability of unemployment benefits—all the way to 99 weeks in the states where unemployment was highest. A recent study has found that the extensions served to increase unemployment significantly by putting upward pressure on wages, leading to less jobs creation by firms. We replicate the methodology of this study with an updated and longer sample and find a much smaller impact. We estimate that the impact of extending benefits on unemployment through wages and job creation can, at its highest, account for only one-fourth of the increase in the unemployment rate; an impact that is much lower than other estimates in the literature.

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  • Amaral, Pedro S. & Ice, Jessica, 2014. "Reassessing the Effects of Extending Unemployment Insurance Benefits," Economic Commentary, Federal Reserve Bank of Cleveland, issue Nov.
  • Handle: RePEc:fip:fedcec:00028
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    1. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 143-213.
    2. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," NBER Working Papers 19499, National Bureau of Economic Research, Inc.
    3. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    4. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
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    Cited by:

    1. Camille Landais & Pascal Michaillat & Emmanuel Saez, 2018. "A Macroeconomic Approach to Optimal Unemployment Insurance: Applications," American Economic Journal: Economic Policy, American Economic Association, vol. 10(2), pages 182-216, May.
    2. Dieterle, Steven & Bartalotti, Otávio C. & Brummet, Quentin O., 2016. "Revisiting the Effects of Unemployment Insurance Extensions on Unemployment: A Measurement Error-Corrected RD Approach," Staff General Research Papers Archive 3392, Iowa State University, Department of Economics.

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