Interpreting Recent Quasi-Experimental Evidence on the Effects of Unemployment Benefit Extensions

28 Pages Posted: 24 May 2016

See all articles by Marcus Hagedorn

Marcus Hagedorn

University of Oslo - Department of Economics

Iourii Manovskii

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

Kurt Mitman

IIES

Date Written: May 2016

Abstract

We critically review recent methodological and empirical contributions aiming to provide a comprehensive assessment of the effects of unemployment benefit extensions on the labor market and attempt to reconcile their apparently disparate findings. We describe two key challenges facing these studies - the endogeneity of benefit durations to labor market conditions and isolating true effects of actual policies from agents' responses to expectations of future policy changes.

Marinescu (2015) employs a methodology that does not attempt to address these challenges. A more innovative approach in Coglianese (2015) and Chodorow-Reich and Karabarbounis (2016) attempts to overcome these challenges by exploiting a sampling error in unemployment rates as an exogenous variation. Unfortunately, we find that this approach falls prey to the very problems it aims to overcome and it appears unlikely that the fundamental bias at the core of this approach can be overcome. We find more promising the approach based on unexpected policy changes as in the recent contributions by Johnston and Mas (2015) and Hagedorn, Manovskii and Mitman (2015). This approach by design addresses the problem of benefit endogeneity. It does not, however, fully address the effects of expectations and generally yields a lower bound on the actual effects of policies.

Keywords: Unemployment, Unemployment insurance

JEL Classification: E24, J63, J64, J65

Suggested Citation

Hagedorn, Marcus and Manovskii, Iourii and Mitman, Kurt, Interpreting Recent Quasi-Experimental Evidence on the Effects of Unemployment Benefit Extensions (May 2016). CEPR Discussion Paper No. DP11290. Available at SSRN: https://ssrn.com/abstract=2783310

Marcus Hagedorn (Contact Author)

University of Oslo - Department of Economics ( email )

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

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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