A quantitative analysis of unemployment benefit extensions

Extensions of unemployment insurance (UI) benefits have been implemented in response to the Great Recession. This paper measures the effect of these extensions on the unemployment rate using a calibrated structural model featuring job search and consumption-saving decisions, skill depreciation, and UI eligibility. The ongoing UI benefit extensions are found to have raised the unemployment rate by 1.4 percentage points, which is about 30% of the observed increase since 2007. Moreover, the contribution of the UI benefit extensions to the elevated unemployment rate increased during 2009–2011; while the number of vacancies recovered, the successive extensions kept search intensity down.

► The effect of UI benefit extensions on the unemployment rate (UR) is measured.
► A calibrated structural model of job search with realistic UI extensions is used.
► The current UI benefit extensions raised the UR by 1.4 percentage points.
► The contribution of the UI extensions to the elevated UR rose during 2009–2011.
► Extension in December 2010 kept the UR higher by 0.6 percentage points in 2011.