Unemployment Insurance Extension During Great Recession Did Not Destroy Jobs

https://www.ineteconomics.org/ideas-papers/blog/unemployment-insurance-extension-during-great-recession-did-not-destroy-jobs

By Christopher Boone, Arindrajit Dube, Lucas Goodman, and Ethan Kaplan
Oct. 13, 2016

As joblessness soared during the Great Recession, one of the key policies enacted by Congress was to extend unemployment insurance (UI) duration. The change was dramatic: Prior to the recession, all but two states provided a maximum of 26 weeks of benefits. During the recession, however, most states reached a maximum duration of 99 weeks. Economists have long been concerned about the possible negative effects of extended benefits in reducing job search and thus the level of employment, while simultaneously recognizing the social insurance value of unemployment benefits.

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we examined 1,161 county pairs that straddle state borders. Within each pair, counties share a similar geography and economic environment, but often had different maximum lengths of benefits. In other words, these county pairs provided good controls for one another while receiving differential treatment. We then compared changes in county employment to changes in the maximum length of benefits within each pair for the 2007-2014 time period.

So what do we find?

First and most importantly, we find no disemployment effect from the UI benefits as measured by the employment-to-population ratio. Our estimates suggest that, at worst, increasing UI duration from 26 to 99 weeks led to a 0.09 percentage point decline in the employment-to-population ratio, and at best had the effect of boosting this ratio by 0.41 percentage points. Given the fact that this was a massive increase in benefits (almost quadrupling the pre-recessionary level of UI duration), it suggests that the concerns about disincentivizing job-search efforts may be overblown.

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