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The Long-Term Effects of Unemployment Insurance Extensions on Employment

  • Johannes F. Schmieder
  • Till M. von Wachter
  • Stefan Bender

The majority of papers analyzing the employment effects of unemployment insurance (UI) benefit durations focuses on the duration of the first unemployment spell. In this paper, we make two contributions. First, we use a regression discontinuity design to analyze the long-term effects of extensions in UI durations. These estimates differ from standard estimates that they incorporate differences in UI benefit receipt and employment due to recurrent unemployment spells. Second, we derive a welfare formula of UI extensions that incorporates recurrent nonemployment spells. We find that accounting for nonemployment beyond the initial spell leads to a significant reduction in estimates of the nonemployment effect of UI extensions by about 25 percent. We show this effect is only partly explained by a mechanical effect due to finite follow-up durations, and mainly arises from a lower probability of days in nonemployment in months after end of the initial nonemployment spell.

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File URL: http://www.nber.org/papers/w17814.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17814.

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Date of creation: Feb 2012
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Publication status: published as Schmieder, Johannes F., Till von Wachter, and Stefan Bender. 2012. "The Long-Term Effects of UI Extensions on Employment." American Economic Review, 102(3): 514–19.
Handle: RePEc:nbr:nberwo:17814
Note: EFG LS PE
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  1. Lemieux, Thomas & MacLeod, W. Bentley, 2000. "Supply side hysteresis: the case of the Canadian unemployment insurance system," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 139-170, October.
  2. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
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