Working Paper: CEPR ID: DP11060
Authors: Marcus Hagedorn; Iourii Manovskii; Kurt Mitman
Abstract: We measure the aggregate effect of unemployment benefit duration on employment and the labor force. We exploit the variation induced by Congress' failure in December 2013 to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. Our baseline estimates reveal that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.019 log points. In levels, 2.1 million individuals secured employment in 2014 due to the benefit cut. More than 1.1 million of these workers would not have participated in the labor market had benefit extensions been reauthorized.
Keywords: aggregate employment; labor force; macroeconomic stabilization; search and matching; unemployment insurance
JEL Codes: E24; E62; E65; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Employment (J68) | Individuals entering labor market (J49) |
| Unemployment benefit duration (J65) | Employment (J68) |
| Unemployment benefit duration (J65) | Labor force participation (J21) |