Unemployment Benefits and Work Incentives: The U.S. Labor Market in the Great Recession
In the midst of massive job destruction and sharply rising long-term unemployment, a series of unemployment insurance (UI) eligibility extensions were enacted in 2008-09 that raised the regular 26-week limit to as many as 99 weeks. In response, many leading economists and business press editorials invoked the 'laws of economics' to warn that since extended benefits reduce work incentives, UI extensions would exacerbate the long-term unemployment problem. This paper reviews the evidence put forward in support of the orthodox prediction, which has relied on extrapolating from pre-Great Recession conditions, particularly through the application of "spike at benefit-exhaustion" findings from the early 1980s. Much more compelling evidence can be found by direct examination of the 2008-10 data, which shows no support for UI related work disincentive effects.
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- Michael Elsby & Bart Hobijn & Aysegül Sahin, 2010.
"The labor market in the Great Recession,"
Working Paper Series
2010-07, Federal Reserve Bank of San Francisco.
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- Makoto Nakajima, 2011.
"Quantitative Analysis of Unemployment Benefit Extensions,"
2011 Meeting Papers
328, Society for Economic Dynamics.
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- Makoto Nakajima, 2011. "A Quantitative Analysis of Unemployment Benefit Extensions," Global COE Hi-Stat Discussion Paper Series gd10-175, Institute of Economic Research, Hitotsubashi University.
- Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
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