Working Paper: NBER ID: w19499
Authors: Marcus Hagedorn; Fatih Karahan; Iourii Manovskii; Kurt Mitman
Abstract: 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.
Keywords: unemployment benefits; unemployment; Great Recession; macro effects
JEL Codes: E24; J63; J64; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unemployment benefit extensions (J65) | unemployment rates (J64) |
| unemployment benefit extensions (J65) | equilibrium wages (J31) |
| equilibrium wages (J31) | firms' profits (L21) |
| firms' profits (L21) | job vacancy creation (J68) |
| unemployment benefit extensions (J65) | persistent unemployment post-recession (J64) |
| standard benefit duration (J32) | unemployment rate (2010) (J64) |
| standard benefit duration (J32) | unemployment rate (2011) (J64) |