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Do Extended Unemployment Bene ts Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market

  • Henry S. Farber

    (Princeton University, NBER, IZA)

  • Robert G. Valletta

    (Federal Reserve Bank of San Francisco, IZA)

In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to new historical highs in the United States, up to 99 weeks as of late 2009 into 2012. We exploit variation in the timing and size of UI bene t extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of bene ts (up to 72 weeks) during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the e ects of UI extensions on unemployment transitions and duration. We rely on individual variation in bene t availability based on the duration of unemployment spells and the length of UI bene ts available in the state and month, conditional on state economic conditions and individual characteristics. We nd a small but statistically signi cant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The e ect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job nding rate). The magnitude of the overall e ect on exits and duration is similar across the two episodes of bene t extensions. Although the overall e ect of UI extensions on exits from unemployment is small, it implies a substantial e ect of extended bene ts on the steady-state share of unemployment in the cross-section that is long-term.

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Paper provided by Princeton University, Department of Economics, Industrial Relations Section. in its series Working Papers with number 1450.

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Date of creation: Apr 2013
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Handle: RePEc:pri:indrel:dsp01th83kz40p
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