Labor Market Transitions and the Availability of Unemployment InsuranceLabor Market Transitions and the Availability of Unemployment Insurance

Economists often expect that unemployment insurance (UI) benefits will result in elevated unemployment rates because recipients face an incentive to remain unemployed in order to continue receiving benefits-as taking a job or dropping out of the labor force would cause their UI benefit payments to cease. Interest in this issue intensified when the available weeks of federally funded UI benefits were extended in response to the prolonged recovery from the Great Recession. This recent episode provides new data with which to investigate empirically the effect of UI benefit availability on the ranks of the unemployed and on the U.S. unemployment rate. By using individual data from the Current Population Survey for the 2005-2013 period-during which the federal government extended and then reduced the length of benefit weeks to varying degrees in different states-the author studies how the program parameters in the UI system influenced the monthly transition rates of job losers to either employment or dropping out of the labor force. Job losers are defined as unemployed individuals who are on temporary layoff, who permanently lost jobs, or who completed temporary jobs.

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