The Limited Macroeconomic Effects of Unemployment Benefit Extensions

55 Pages Posted: 11 Apr 2016

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Loukas Karabarbounis

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: April 2016

Abstract

By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.

Suggested Citation

Chodorow-Reich, Gabriel and Karabarbounis, Loukas, The Limited Macroeconomic Effects of Unemployment Benefit Extensions (April 2016). NBER Working Paper No. w22163. Available at SSRN: https://ssrn.com/abstract=2762070

Gabriel Chodorow-Reich (Contact Author)

Harvard University Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/chodorow-reich

Loukas Karabarbounis

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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