Do Unemployment Benefit Extensions Explain the Emergence of Jobless Recoveries?

Dnr:

SNIC 2017/7-119

Type:

SNAC Small

Principal Investigator:

Kurt Mitman

Affiliation:

Stockholms universitet

Start Date:

2017-08-31

End Date:

2018-03-01

Primary Classification:

50201: Nationalekonomi

Webpage:

http://www.kurtmitman.com

Allocation

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 benefit 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.