Working Paper: NBER ID: w22163
Authors: Gabriel Chodorow-Reich; Loukas Karabarbounis
Abstract: By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.
Keywords: unemployment benefits; macroeconomic effects; labor market; Great Recession
JEL Codes: E24; E62; 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 rate (J64) |
| Unemployment benefit extensions (J65) | Employment (J68) |
| Unemployment benefit extensions (J65) | Vacancies (J63) |
| Unemployment benefit extensions (J65) | Worker earnings (J31) |
| UI error innovation (O36) | Unemployment rate (J64) |
| UI error innovation (O36) | Fraction of unemployed claiming UI benefits (J65) |