Unemployment Benefits and Unemployment in the Great Recession: The Role of Equilibrium Effects
Previous Title: "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects"
2013 Number 646
Revised September 2019
Iourii Manovskii, and
Equilibrium labor market theory suggests that unemployment benefit extensions affect
unemployment by impacting both job search decisions by the unemployed and job creation
decisions by employers. The existing empirical literature focused on the former effect only. We
develop a new methodology necessary to incorporate the measurement of the latter effect.
Implementing this methodology in the data, we find that benefit extensions raise equilibrium
wages and lead to a sharp contraction in vacancy creation and employment and a rise in