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A quantitative analysis of unemployment benefit extensions

Author Info

  • Makoto Nakajima

Abstract

This paper measures the effect of extensions of unemployment insurance (UI) benefits on the unemployment rate using a calibrated structural model that features job search and consumption-saving decision, skill depreciation, UI eligibility, and UI benefit extensions that capture what has happened during the current downturn. The author finds that the extensions of UI benefits contributed to an increase in the unemployment rate by 1.2 percentage points, which is about a quarter of an observed increase during the current downturn (a 5.1 percentage point increase from 4.8 percent at the end of 2007 to 9.9 percent in the fall of 2009). Among the remaining 3.9 percentage points, 2.4 percentage points are due to the large increase in the separation rate, while the staggering job-finding probability contributes 1.4 percentage points. The last extension in December 2010 moderately slows down the recovery of the unemployment rate. Specifically, the model indicates that the last extension keeps the unemployment rate higher by up to 0.4 percentage point during 2011.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 11-8.

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Date of creation: 2011
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Handle: RePEc:fip:fedpwp:11-8
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Keywords: Unemployment insurance ; Unemployment;

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Find related papers by JEL classification:
  • 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
  • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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  1. The impact of the extension of unemployment insurance benefits in the US
    by Economic Logician in Economic Logic on 2011-04-01 14:03:00
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