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

43 Pages Posted: 18 May 2013

See all articles by Henry S. Farber

Henry S. Farber

Princeton University; National Bureau of Economic Research (NBER)

Robert G. Valletta

Federal Reserve Bank of San Francisco; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

In response to the Great Recession, the availability of unemployment insurance (UI) benefits was extended to an unprecedented 99 weeks in many U.S. states in the 2009-2012 period. We use matched monthly data from the CPS to exploit variation in the timing and size of the UI benefit extensions across states to estimate the overall impact of these extensions on individual exit from unemployment, and we compare the estimated impact with that for the prior extension of benefits during the much milder downturn in the early 2000s. In both periods, we find a small but statistically significant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment. The effects on exits and duration are primarily due to a reduction in exits from the labor force rather than to a decrease in exits to employment (the job finding rate). Although the overall effect of UI extensions on exit from unemployment is small, it implies a substantial effect of extended benefits on the steady-state share of unemployment in the cross-section that is long-term.

Suggested Citation

Farber, Henry S. and Valletta, Robert G., Do Extended Unemployment Benefits Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market (May 2013). NBER Working Paper No. w19048. Available at SSRN: https://ssrn.com/abstract=2266715

Henry S. Farber (Contact Author)

Princeton University ( email )

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Robert G. Valletta

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