The Safety Net as a Springboard? A General Equilibrium based Policy Evaluation

We develop a search-and-matching model where the magnitude of unemployment insurance benefits affects the likelihood that unemployed actually engage in active job search. To quan- titively discipline this relation we use administrative data of unemployed search audits. We use the model to quantify the effects of unemployment reforms. For small benefits’ increases, the policymaker faces a trade-off between an uptick in the measure of unemployed actually searching and a fall in the unemployment exit-rate conditional on searching. For larger bene- fits’ increases, an active search margin magnifies the benefits’ disincentives, leading to a bigger drop in the employment rate than previously thought.