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Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects

Listed author(s):
  • Marcus Hagedorn
  • Fatih Karahan
  • Iourii Manovskii
  • Kurt Mitman

Equilibrium labor market theory suggests that unemployment benefit extensions affect unemployment by impacting both job search decisions by the unemployed and job creation decisions by employers. The existing empirical literature focused on the former effect only. We develop a new methodology necessary to incorporate the measurement of the latter effect. Implementing this methodology in the data, we find that benefit extensions raise equilibrium wages and lead to a sharp contraction in vacancy creation, employment, and a rise in unemployment.

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File URL: http://www.nber.org/papers/w19499.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19499.

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Date of creation: Oct 2013
Handle: RePEc:nbr:nberwo:19499
Note: EFG
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  1. Donald W.K. Andrews, 2003. "Cross-section Regression with Common Shocks," Cowles Foundation Discussion Papers 1428, Cowles Foundation for Research in Economics, Yale University.
  2. Arindrajit Dube & T. William Lester & Michael Reich, 2010. "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 945-964, November.
  3. Jesse Rothstein, 2011. "Unemployment Insurance and Job Search in the Great Recession," NBER Working Papers 17534, National Bureau of Economic Research, Inc.
  4. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  5. David Card & Raj Chetty & Andrea Weber, 2007. "The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job?," NBER Working Papers 12893, National Bureau of Economic Research, Inc.
  6. Johannes F. Schmieder & Till von Wachter & Stefan Bender, 2012. "The Effects of Extended Unemployment Insurance Over the Business Cycle: Evidence from Regression Discontinuity Estimates Over 20 Years," The Quarterly Journal of Economics, Oxford University Press, vol. 127(2), pages 701-752.
  7. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
  8. Jed Kolko & David Neumark & Marisol Cuellar Mejia, 2011. "What Do Business Climate Indexes Teach Us About State Policy and Economic Growth?," NBER Working Papers 16968, National Bureau of Economic Research, Inc.
  9. Casey B. Mulligan, 2010. "Foreclosures, Enforcement, and Collections under the Federal Mortgage Modification Guidelines," NBER Working Papers 15777, National Bureau of Economic Research, Inc.
  10. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, September.
  11. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  12. Kyle F. Herkenhoff & Lee E. Ohanian, 2012. "Foreclosure delay and U.S. unemployment," Working Papers 2012-017, Federal Reserve Bank of St. Louis.
  13. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
  14. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
  15. Casey B. Mulligan, 2008. "A Depressing Scenario: Mortgage Debt Becomes Unemployment Insurance," NBER Working Papers 14514, National Bureau of Economic Research, Inc.
  16. Moffitt, Robert, 1985. "Unemployment insurance and the distribution of unemployment spells," Journal of Econometrics, Elsevier, vol. 28(1), pages 85-101, April.
  17. Thomas J. Holmes, 1998. "The Effect of State Policies on the Location of Manufacturing: Evidence from State Borders," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 667-705, August.
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