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

52 Pages Posted: 16 Oct 2013

See all articles by Marcus Hagedorn

Marcus Hagedorn

University of Oslo - Department of Economics

Fatih Karahan

Federal Reserve Bank of New York

Iourii Manovskii

University of Pennsylvania - Department of Economics; IZA Institute of Labor Economics

Kurt Mitman

IIES

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2013

Abstract

We 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.

Keywords: unemployment insurance, unemployment, employment, vacancies, wages, search, matching

JEL Classification: E24, J63, J64, J65

Suggested Citation

Hagedorn, Marcus and Karahan, Fatih and Manovskii, Iourii and Mitman, Kurt, Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects (October 1, 2013). FRB of New York Staff Report No. 646. Available at SSRN: https://ssrn.com/abstract=2340678 or http://dx.doi.org/10.2139/ssrn.2340678

Marcus Hagedorn

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway

Fatih Karahan (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Iourii Manovskii

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-6880 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~manovski/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Kurt Mitman

IIES ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://kurtmitman.com

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