The Long-Term Effects of Unemployment Insurance Extensions on Employment

Johannes F. Schmieder, Till M. von Wachter, Stefan Bender

NBER Working Paper No. 17814
Issued in February 2012
NBER Program(s):The Economic Fluctuations and Growth Program, The Labor Studies Program, The Public Economics Program

The majority of papers analyzing the employment effects of unemployment insurance (UI) benefit durations focuses on the duration of the first unemployment spell. In this paper, we make two contributions. First, we use a regression discontinuity design to analyze the long-term effects of extensions in UI durations. These estimates differ from standard estimates that they incorporate differences in UI benefit receipt and employment due to recurrent unemployment spells. Second, we derive a welfare formula of UI extensions that incorporates recurrent nonemployment spells. We find that accounting for nonemployment beyond the initial spell leads to a significant reduction in estimates of the nonemployment effect of UI extensions by about 25 percent. We show this effect is only partly explained by a mechanical effect due to finite follow-up durations, and mainly arises from a lower probability of days in nonemployment in months after end of the initial nonemployment spell.

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Document Object Identifier (DOI): 10.3386/w17814

Published: Schmieder, Johannes F., Till von Wachter, and Stefan Bender. 2012. "The Long-Term Effects of UI Extensions on Employment." American Economic Review, 102(3): 514–19.

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