Assessing the Stabilizing Effects of Unemployment Benefit Extensions

Antonella Trigari () and Alexey Gorn

No 16125, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study the stabilizing role of benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for a stabilizing aggregate demand channel and a destabilizing labor market channel. We characterize each channel analytically and find that aggregate demand effects quantitatively prevail in the US. When feeding-in estimated shocks, the model tracks unemployment in the two most recent downturns. We find that extensions lowered unemployment by a maximum of 0.35 pp in the Great Recession, while the joint stabilizing effect of extensions and benefit compensation peaked at 1.08 pp in the pandemic.

Keywords: Unemployment insurance; Cyclical benefit extensions; Heterogeneous agents; Redistribution; Precautionary motives; Opportunity cost of employment; Nominal rigidities; Search frictions (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 J63 J64 J65 (search for similar items in EconPapers)
Date: 2021-05
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Related works:
Journal Article: Assessing the Stabilizing Effects of Unemployment Benefit Extensions (2024)
Working Paper: Assessing the Stabilizing Effects of Unemployment Benefit Extensions (2023)
Working Paper: Assessing the (De)Stabilizing Effects of Unemployment Benefit Extensions (2021)
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