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Unemployment Insurance and State Economic Activity

  • Won Lee Kyung
  • James Schmidt
  • George Rejda
Registered author(s):

    The unemployment insurance (UI) system collects premiums from firms and provides temporary compensation to involuntarily unemployed workers. The system has traditionally been viewed as an automatic stabilizer for national and area economies. This paper examines the impacts that UI benefits and contributions have had upon general economic activity in California and Michigan, large states that have experienced episodes of moderate and high unemployment rates, respectively, during the past two decades. For each state, we prepare a multiequation model of the economy and impose constraints represented by cointegrating vectors. Impulse responses measuring the impact of UI benefits and contributions on the economies are obtained from the models. The strengths of the responses are assessed using significance tests based upon distributions that have been derived for models containing cointegrating vectors. The results indicate that UI benefits and contributions provide little impact of consequence upon general economic activity in the two states. [E24]

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168739900000007
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    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 13 (1999)
    Issue (Month): 3 ()
    Pages: 77-95

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    Handle: RePEc:taf:intecj:v:13:y:1999:i:3:p:77-95
    DOI: 10.1080/10168739900000007
    Contact details of provider: Web page: http://www.tandfonline.com/RIEJ20

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    1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    2. Terrence Kinal & Jonathan Ratner, 1986. "A VAR Forecasting Model of a Regional Economy: Its Construction and Comparative Accuracy," International Regional Science Review, SAGE Publishing, vol. 10(2), pages 113-126, August.
    3. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
    4. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    5. Oaxaca, Ronald L. & Taylor, Carol A., 1986. "Simulating the impacts of economic programs on urban areas: The case of unemployment insurance benefits," Journal of Urban Economics, Elsevier, vol. 19(1), pages 23-46, January.
    6. Lutkepohl, Helmut, 1990. "Asymptotic Distributions of Impulse Response Functions and Forecast Error Variance Decompositions of Vector Autoregressive Models," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 116-25, February.
    7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    8. Perron, Pierre, 1988. "Trends and random walks in macroeconomic time series : Further evidence from a new approach," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 297-332.
    9. George M. Von Furstenberg, 1976. "Stabilization Characteristics of Unemployment Insurance," ILR Review, Cornell University, ILR School, vol. 29(3), pages 363-376, April.
    10. Shoesmith, Gary L., 1992. "Non-cointegration and causality: Implications for VAR modeling," International Journal of Forecasting, Elsevier, vol. 8(2), pages 187-199, October.
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