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Do unemployment benefit extensions explain the emergence of jobless recoveries?

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  • Mitman, Kurt
  • Rabinovich, Stanislav

Abstract

Countercyclical unemployment benefit extensions in the United States act as a propagation mechanism, contributing to the high persistence of unemployment following recent recessions, as well as the weak correlation between unemployment and productivity. We show this by modifying an otherwise standard frictional model of the labor market to incorporate a stochastic and state-dependent process for unemployment insurance estimated on US data. Accounting for movements in both productivity and unemployment insurance, our calibrated model is consistent with post-war labor-market dynamics. It explains the emergence of jobless recoveries in the 1990s, the low correlation between unemployment and productivity, and the apparent shifts in the Beveridge curve following recessions.

Suggested Citation

  • Mitman, Kurt & Rabinovich, Stanislav, 2024. "Do unemployment benefit extensions explain the emergence of jobless recoveries?," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    • Handle: RePEc:eee:dyncon:v:169:y:2024:i:c:s0165188924001568
    DOI: 10.1016/j.jedc.2024.104964
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    More about this item

    Keywords

    Business cycles; Jobless recoveries; Unemployment insurance;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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