BPEA | Fall 2011

Unemployment Insurance and Job Search in the Great Recession

Jesse Rothstein
Jesse Rothstein
Jesse Rothstein Professor of Public Policy and Economics - University of California, Berkeley
Discussants: Lisa B. Kahn and Stephanie Aaronson
Stephanie Aaronson Headshot
Stephanie Aaronson Senior Associate Director, Division of Research and Statistics - Federal Reserve Board

Fall 2011

More than 2 years after the official end of the Great Recession,
the labor market remains historically weak. One candidate explanation
is supply-side effects driven by dramatic expansions of unemployment insurance
(UI) benefit durations, to as long as 99 weeks. This paper investigates
the effect of these extensions on job search and reemployment. I use the longitudinal
structure of the Current Population Survey to construct unemployment
exit hazards that vary across states, over time, and between individuals
with differing unemployment durations. I then use these hazards to explore
a variety of comparisons intended to distinguish the effects of UI extensions
from other determinants of employment outcomes. The various specifications
yield quite similar results. UI extensions had significant but small negative
effects on the probability that the eligible unemployed would exit unemployment.
These effects are concentrated among the long-term unemployed. The
estimates imply that UI extensions raised the unemployment rate in early 2011
by only about 0.1 to 0.5 percentage point, much less than implied by previous
analyses, with at least half of this effect attributable to reduced labor force exit
among the unemployed rather than to the changes in reemployment rates that
are of greater policy concern.