Unemployment Benefit Extensions Caused Jobless Recoveries!?

33 Pages Posted: 25 Apr 2014  

Kurt Mitman

IIES

Stanislav Rabinovich

University of Pennsylvania - Department of Economics; Amherst College - Department of Economics

Date Written: April 21, 2014

Abstract

The last three recessions in the United States were followed by jobless recoveries: while labor productivity recovered, unemployment remained high. In this paper, we show that countercyclical unemployment benefit extensions lead to jobless recoveries. We augment the standard Mortensen-Pissarides model to incorporate unemployment benefits expiration and state-dependent extensions of unemployment benefits. In the model, an extension of unemployment benefits slows down the recovery of vacancy creation in the aftermath of a recession. We calibrate the model to US data and show that it is quantitatively consistent with observed labor market dynamics, in particular the emergence of jobless recoveries after 1990. Furthermore, counterfactual experiments indicate that unemployment benefits are quantitatively important in explaining jobless recoveries.

Keywords: Unemployment Insurance, Business Cycles, Jobless Recoveries

JEL Classification: E24, E32, J65

Suggested Citation

Mitman, Kurt and Rabinovich, Stanislav, Unemployment Benefit Extensions Caused Jobless Recoveries!? (April 21, 2014). PIER Working Paper No. 14-013. Available at SSRN: https://ssrn.com/abstract=2428268 or http://dx.doi.org/10.2139/ssrn.2428268

Kurt Mitman (Contact Author)

IIES ( email )

Stockholm, SE-10691
Sweden

HOME PAGE: http://kurtmitman.com

Stanislav Rabinovich

University of Pennsylvania - Department of Economics ( email )

160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
United States

Amherst College - Department of Economics ( email )

P.O. Box 5000
Amherst, MA 01002-5000
United States

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