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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed-the micro effect-we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.

Search with Wage Posting Under Sticky Prices

“…Increases in b increase the average wage by increasing the fixed-cost portion of compensation, which lowers vacancies, raises unemployment, and lowers output. These results are consistent with the empirical findings of Hagedorn et al (2013) regarding the general equilibrium effects of unemployment benefit extensions during the Great Recession. Indeed, they conclude that extending unemployment benefits raised equilibrium wages, which subsequently lead to a contraction in vacancy creation and a rise in unemployment.…”

The Effect of Unemployment Benefits and Nonemployment Durations on Wages

“…Our paper is also related to a recent literature concerned with the effects of UI on employment due to general equilibrium adjustments (e.g., Landais, Michaillat, and Saez 2015;Hagedorn et al 2013;Marinescu 2015). Our estimates are based on variation within labor markets, and hence obtain microeconomic elasticities.…”

“…On the other hand, if UI by increasing wages raises the cost of job creation, UI may further raise unemployment rates and prolong the recovery. This channel has been debated in a series of high-profile papers (e.g., Marinescu 2015; Landais, Michaillat, and Saez 2015;Hagedorn et al 2013). Yet, the effect of UI durations on reemployment wages does not reflect the true labor cost to employers, which also depends on workers' skill level.…”

Quantifying the Lasting Harm to the US Economy from the Financial Crisis

“…The answer is fairly uniformly that the effects of UI enhancements during times of high unemployment in raising unemployment still further are quite small, in the range of 0.3 percentage points of extra unemployment. Hagedorn et al (2013) tackle a more challenging question, whether more generous UI benefits result in higher wages and higher unemployment by raising the flow value of unemployment and thus shrinking the gap between productivity and that flow value. They compare labor markets with arguably similar conditions apart from the UI benefits regime.…”

“…Hagedorn et al (2014) treat the termination of extended UI benefits in North Carolina as a case study for their research. These benefits ended in June 2013.…”