NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects

Marcus Hagedorn, Fatih Karahan, Iourii Manovskii, Kurt Mitman

NBER Working Paper No. 19499
Issued in October 2013
NBER Program(s):   EFG

Equilibrium labor market theory suggests that unemployment benefit extensions affect unemployment by impacting both job search decisions by the unemployed and job creation decisions by employers. The existing empirical literature focused on the former effect only. We develop a new methodology necessary to incorporate the measurement of the latter effect. Implementing this methodology in the data, we find that benefit extensions raise equilibrium wages and lead to a sharp contraction in vacancy creation, employment, and a rise in unemployment.

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This paper was revised on May 11, 2016

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Document Object Identifier (DOI): 10.3386/w19499

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