NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Explaining the Changing Dynamics of Unemployment: Evidence from Civil War Records

Dora L. Costa

NBER Historical Working Paper No. 51
Issued in December 1993
NBER Program(s):Development of the American Economy

I investigate why workers' probability of leaving unemployment has fallen since 1900 by estimating the impact of a large government transfer, the first major pension program in the United States, covering Union Army veterans of the Civil War. The pension, because of the program's rules, was a strict income transfer and these rules create a natural experiment to identify the effects of pensions and health on labor supply. Pensions exerted a large impact on the probability of long-term, but not of short-term unemployment. Estimated hazards suggest that, consistent with a job search model, pensions affected the probability of both entering and exiting unemployment. But, pensions mainly lowered the probability of leaving unemployment. The findings suggest that explanations for the secular rise in long-term unemployment should focus on factors such as the secular increase in wealth and the increased availability and generosity of unemployment benefits.

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Document Object Identifier (DOI): 10.3386/h0051

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