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Unemployment Benefit Extensions Caused Jobless Recoveries!?

Kurt Mitman and Stanislav Rabinovich ()

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: The last three recessions in the United States were followed by jobless recoveries: while labor productivity recovered, unemployment remained high. In this paper, we show that countercyclical unemployment benefit extensions lead to jobless recoveries. We augment the standard Mortensen-Pissarides model to incorporate unemployment benefits expiration and state-dependent extensions of unemployment benefits. In the model, an extension of unemployment benefits slows down the recovery of vacancy creation in the aftermath of a recession. We calibrate the model to US data and show that it is quantitatively consistent with observed labor market dynamics, in particular the emergence of jobless recoveries after 1990. Furthermore, counterfactual experiments indicate that unemployment benefits are quantitatively important in explaining jobless recoveries.

Keywords: Unemployment Insurance; Business Cycles; Jobless Recoveries (search for similar items in EconPapers)
JEL-codes: E24 E32 J65 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2014-04-21
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

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