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, Revised in May 2016
NBER Program(s):The Economic Fluctuations and Growth Program

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.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w19499

Users who downloaded this paper also downloaded* these: