Assessing the Stabilizing Effects of Unemployment Benefit Extensions
American Economic Journal: Macroeconomics
vol. 16,
no. 1, January 2024
(pp. 387-440)
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 United States. 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 0.36 pp in the Great Recession, while the joint stabilizing effect of extensions and benefit compensation peaked at 1.12 pp in the pandemic.Citation
Gorn, Alexey, and Antonella Trigari. 2024. "Assessing the Stabilizing Effects of Unemployment Benefit Extensions." American Economic Journal: Macroeconomics, 16 (1): 387-440. DOI: 10.1257/mac.20210385Additional Materials
JEL Classification
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- J64 Unemployment: Models, Duration, Incidence, and Job Search
- J65 Unemployment Insurance; Severance Pay; Plant Closings
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