Unemployment Durations and Extended Unemployment Benefits in Local Labor Markets

Abstract

Many empirical studies have confirmed the theoretical prediction that longer-term Unemployment Insurance (UI) entitlement leads to longer unemployment duration. Most of those studies have examined special programs that provide extra weeks of unemployment benefits when unemployment rates in the region are higher. Hence, they must distinguish if the longer unemployment duration among UI claimants observed in these cases is due to the extended benefits or to the adverse labor market conditions that trigger those extensions. In contrast, this paper measures the effect of identical entitlement extensions across two labor markets facing very different demand conditions-Pittsburgh and Philadelphia, over the years 1980-85. The results confirm findings of the existing literature and indicate that the adverse effect of longer entitlement changes relatively little in response to variation in demand conditions.

Keywords: Unemployment Insurance, Hazard models, Extended UI benefits

JEL Classification: J6, J4, J0