One goal of extending the duration of unemployment insurance (UI) in recessions is to increase UI coverage in the face of longer unemployment spells. Although it is a common concern that such ...extensions may themselves raise nonemployment durations, it is not known how recessions would affect the magnitude of this moral hazard. To obtain causal estimates of the differential effects of UI in booms and recessions, this article exploits the fact that in Germany, potential UI benefit duration is a function of exact age which is itself invariant over the business cycle. We implement a regression discontinuity design separately for 20 years and correlate our estimates with measures of the business cycle. We find that the nonemployment effects of a month of additional UI benefits are, at best, somewhat declining in recessions. Yet the UI exhaustion rate, and therefore the additional coverage provided by UI extensions, rises substantially during a downturn. The ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by UI extensions. Hence, our results imply that the effective moral hazard effect of UI extensions is significantly lower in recessions than in booms. Using a model of job search with liquidity constraints, we also find that in the absence of market-wide effects, the net social benefits from UI extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of UI durations, or as a declining function of our measure of effective moral hazard.
While the unemployment insurance (UI) program is one of the largest safety net programs in the United States, research on its benefits is limited. This paper exploits plausibly exogenous changes in ...state UI laws to empirically estimate whether UI generosity mitigates any of the previously documented negative health effects of job loss. The results show that higher UI generosity increases health insurance coverage and utilization, with stronger effects during periods of high unemployment rates. During such periods, higher UI generosity also leads to improved self-reported health. Finally, I find no effects on risky behaviors or health conditions.
This article shows that equilibrium unemployment dynamics can significantly increase the efficacy of fiscal policy. In response to a shock that brings the economy into a liquidity trap, an expansion ...in government spending increases output and causes a fall in the unemployment rate. Since movements in unemployment are persistent, the effects of current spending prevail into the future, leading to an enduring rise in income. As an enduring rise in income boosts private demand, an increase in government spending sets in motion a virtuous employment-spending spiral with large effects on macroeconomic aggregates.
Unemployment Insurance benefit durations were extended during the Great Recession, reaching 99 weeks for most recipients. The extensions were rolled back and eventually terminated by the end of 2013. ...Using matched CPS data from 2008-2014, we estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback. In both periods, we find little or no effect on job-finding but a reduction in labor force exits due to benefit availability. We estimate that the rollbacks reduced the labor force participation rate by about 0.1 percentage point in early 2014.
Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use ...the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels.
This paper uses microdata to evaluate the impact on the steady-state unemployment rate of an increase in maximum benefit duration. We evaluate a policy change in Austria that extended maximum benefit ...duration and use this policy change to estimate the causal impact of benefit duration on labor market flows. We find that the policy change leads to a significant increase in the steady-state unemployment rate and, surprisingly, most of this increase is due to an increase in the inflow into rather than the outflow from unemployment.
We use the high-frequency, decentralized implementation of stay-at-home (SAH) orders in the United States to disentangle the labor market effects of SAH orders from the general economic disruption ...wrought by the COVID-19 pandemic. We find that each week of SAH exposure increased a state's weekly initial unemployment insurance (UI) claims by 1.9% of its employment level relative to other states. A back-of-the-envelope calculation implies that of the 17 million UI claims between March 14 and April 4, only 4 million were attributable to SAH orders. We present a currency union model to provide conditions for mapping this estimate to aggregate employment losses.
From 1989 to 2012, on average, 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. To understand the implications of these “unclaimed” benefits, we develop ...a directed search model with an endogenous UI take-up rate. In equilibrium, UI collectors have longer unemployment durations relative to non-collectors. The difference results from two forces, a consumption effect and a private information effect, as UI collection histories are unobservable. We characterize both effects analytically and quantitatively. With an endogenous take-up rate, the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI benefit level, relative to the standard model with a 100% take-up rate. The private information effect on non-collector job finding rates plays an important role in this result.
The Great Recession has renewed interest in unemployment insurance (UI) programs around the world. At the same time, there have been important advances in both theory and measurement of UI. In this ...review, we first use the theory to present a unified treatment of the welfare effects of UI benefit levels and durations and derive convenient expressions of the full disincentive effect of UI. We then discuss recent estimates of the effect of UI benefit levels and durations on labor supply based on newly available administrative data and quasi-experimental research designs. Although our review of the new estimates confirms the range of negative labor supply effects of the previous literature, we show, based on the model, that these estimates are imperfect proxies for the actual disincentive effects. We also discuss several active areas of research on UI. These include the effect of UI on aggregate labor market outcomes, its effect on job outcomes, its long-term effects, its effects under nonstandard behavioral assumptions, and its interactions with other programs. We isolate several additional areas in need of further research, including estimates of the social value of UI, as well as the effects of UI in less developed countries.
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