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Effects of the UI Benefit Extensions: Evidence from the Monthly CPS

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Abstract

Using the monthly CPS, the author estimates unemployment-to-employment (UE) transition rates and unemployment-to-inactivity (UN) transition rates by unemployment duration for male workers. When estimated for the period of 2004-2007, during which no extended benefits are available, both of the transition-rate profiles show clear patterns consistent with the expiration of regular benefits at 26 weeks. These patterns largely disappear in the profiles for the period of 2009-2010, during which large-scale extensions have become available. The author conducts counterfactual experiments in which the estimated profiles for 2009-2010 are replaced by the hypothetical profiles inferred from the ones for 2004-2007. The results indicate that the benefit extensions in recent years have raised male workers' unemployment rate by 0.9-1.7 percentage points. Roughly 50-60 percent of the total increase is attributed to the effects on UE transition rates and the remaining part is accounted for by the effects on UN transition rates.

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... Functional forms The search cost function takes the following power function: ν j (s) = a j s 1+d j ; j ∈ {e, u} where a j > 0 and d j > 0. I distinguish the search cost only between employment (e) and unemployment (u) to control for the relationship between the job-to-job transition rate and the job finding rate. 18 Regarding the match quality distribution, a worker-firm match draws a new m from the following Beta distribution: ...
... For the distribution of the insured unemployed, I also separate between high and low unemployment states as UI extensions affect the shape of this distribution. 18 Workers of type-H and type-L face the same cost of search and so do unemployed workers with and without UI. 19 ...
... Functional forms The search cost function takes the following power function: ν j (s) = a j s 1+d j ; j ∈ {e, u} where a j > 0 and d j > 0. I distinguish the search cost only between employment (e) and unemployment (u) to control for the relationship between the job-to-job transition rate and the job finding rate. 17 Regarding the match quality distribution, a worker-firm match draws a new m from the following Beta distribution: ...
... tion of the insured unemployed, I also separate between high and low unemployment states as UI extensions affect the shape of this distribution. 17 Workers of type-H and type-L face the same cost of search and so do unemployed workers with and without UI. 18 ...
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This paper investigates the impact of endogenous unemployment insurance (UI) extensions on the dynamics of unemployment and its duration structure in the US. Using a search and matching model with worker heterogeneity, I allow for the maximum UI duration to depend on unemployment and for UI benefits to depend on worker characteristics. UI extensions have a large effect on long-term unemployment during the Great Recession via job search responses and a moderate effect on total unemployment via job separations. Disregarding rational expectations about the timing of UI extensions implies an overestimation of the unemployment rate by over 2 percentage points.
... With the passage of legislation authorizing UI benefit extensions in the summer of 2008, many back-of-the-envelope exercises have been published to highlight the perverse effects these extensions are likely to have on long-term unemployment. Some are thought experiments using a variety of assumptions (e.g., Barro, 2010;Fujita, 2010). Others rely on results from the older spike-at-benefit-exhaustion literature to estimate possible effects Aaronson et al., 2010). ...
... A very different sort of counterfactual exercise appears in Fujita (2010). He compares unemployment-to-employment (UE) and unemployment-to-nonparticipation (UN) flows for workers in different unemployment duration groups (from less than 4 to more than 97 weeks of unemployment) for 2004-7 and 2009-10: "It is assumed that in the absence of the benefit extensions, the shapes of the UE and UN transition rate functions are the same as those estimated for 2004-2007" (p. ...
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In the midst of sharply rising long-term unemployment, a series of unemployment benefit (UB) eligibility extensions raised the regular 26-week limit to as many as 99 weeks in some states. In response, leading economists have invoked the 'laws of economics' to warn that the extensions may be responsible for much of the current unemployment crisis. This prediction follows directly from a neoclassical vision in which jobs are taken only to generate the income necessary for desired levels of consumption and leisure, workers can 'price' themselves into a job by lowering wage demands, and benefit eligibility rules are not effectively enforced, so any income replacement must reduce work incentives and increase unemployment. In contrast, in a Keynesian--Institutionalist vision, there is job rationing in economic downturns, worker identities are often closely linked to work, there is recognition of long-run scarring effects of extended unemployment, and UB work rules are enforced, so even generous income replacement is not likely to produce much voluntary unemployment, especially in recessions. This paper reviews the evidence on the effects of the UB extensions of 2008--9. The case for the orthodox prediction has relied heavily on extrapolating from pre-Great Recession findings, particularly through the use of selected 'spike at benefit-exhaustion' results from the early 1980s. We conclude that the more recent spike evidence, the recent shifts in the Beveridge curve, and the labour flows data (unemployment to employment) evidence offer little support for the orthodox disincentive view of the current unemployment crisis in the US. If UB generosity has increased unemployment, it has done so more by keeping workers attached to the labour market than by reducing the incentive to work. Copyright 2011, Oxford University Press.
... the JOLTS measure of job openings can be disaggregated into 10 industry groups, the survey's sample size is too small to allow for a disaggregation by regions and industries. 14 The HWI can be disaggregated by regions (the nine US Census divisions), but not by industry. ...
... Vt i . According to (14), the e¤ect of dispersion on matching e¢ ciency is thus a function of var To estimate i 0t for each dataset, we use data on the job …nding rate by segment. Taking the log of jf it = m 0 ...
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This paper presents a framework to study movements in the matching efficiency of the labor market and highlights two observable factors affecting matching efficiency: (i) unemployment composition and (ii) dispersion in labor market conditions, the fact that tight labor markets coexist with slack ones. Using CPS micro data over 1976-2009, we find that composition is responsible for most of the movements in matching efficiency until 2006. In 2008-2009, only forty percent of an exceptionally low matching efficiency can be attributed to composition. New highly disaggregated data on vacancies and unemployment show that the unexplained decline in matching efficiency coincides with an increase in dispersion.
... A few studies conducted by other researchers within the Fed system have assessed the impact of extended UI on the unemployment rate using recent labor market data. The estimated increase in structural unemployment ranges from 0.7 percentage points (Aaronson, Mazumder, and Schecter 2010; AMS) to a maximum of 1.7 percentage points (Fujita 2010). AMS based their analysis on direct examination of recent labor market flows, focusing in particular on the recent low level of flows between unemployment and labor force withdrawal, hence the "labeling effect" noted above. ...
Article
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The U.S. economy is recovering from the financial crisis and ensuing deep recession, but the unemployment rate has remained stubbornly high. Some have argued that the persistent elevation of unemployment relative to historical norms reflects the fact that the shocks that hit the economy were especially disruptive to labor markets and likely to have long lasting effects. If such structural factors are at work they would result in a higher underlying natural or nonaccelerating inflation rate of unemployment, implying that conventional monetary and fiscal policy should not be used in an attempt to return unemployment to its pre-recession levels. We investigate the hypothesis that the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent. We begin by reviewing a standard search and matching model of unemployment, which shows that two curves – the Beveridge curve (BC) and the Job Creation curve (JCC) – determine equilibrium unemployment. Using this framework, our joint theoretical and empirical exercise suggests that the natural rate of unemployment has in fact risen over the past several years, by an amount ranging from 0.6 to 1.9 percentage points. This increase implies a current natural rate in the range of 5.6 to 6.9 percent, with our preferred estimate at 6.25 percent. After examining evidence regarding the effects of labor market mismatch, extended unemployment benefits, and productivity growth, we conclude that only a small fraction of the recent increase in the natural rate is likely to persist beyond a five-year forecast horizon.
... Recent preliminary research that performs more elaborate analysis of monthly unemployment transitions, using matched CPS data and conditioning out the effects of individual characteristics and state economic conditions, finds even smaller impacts of extended UI, on the order of a 0.3 percentage point increase in the unemployment rate (Farber and Valletta 2011). However, this estimate is potentially plagued by measurement problems in the monthly CPS labor force transitions data and therefore is likely to represent a lower bound on the true effect of extended UI. 27 Other recent estimates of the effect of extended UI on the natural rate of unemployment range from 0.7 percentage points (Aaronson, Mazumder, and Schecter 2010) to a maximum of 1.7 percentage points (Fujita, 2010). 28 No quantitative analysis of this short-run effect exists. ...
Article
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The U.S. unemployment rate has remained stubbornly high since the 2007-2009 recession
... Because such an extension of benefits may reduce the job search effort of job seekers and/or prolong labor force attachment of UI recipients, it can potentially explain the rightward shift in the Beveridge curve. Although the estimates of the effects of UI extensions on the unemployment rate range from 0.3-1.7 percentage points, most studies find an effect of around 1 percentage point or less (see Aaronson, Mazumder, and Schechter, 2010;Fujita, 2010;Valletta and Kuang, 2010;Farber and Valletta, 2011;Nakajima, 2012;and Rothstein, 2012). For example, Daly, Hobijn, and Valletta (2011) focus on the comparison of the duration of unemployment for individuals who are eligible or not eligible for UI receipts and find that the increase in duration was larger for UI eligibles. ...
Article
The paper documents the shift in the Beveridge curve in the United States since the Great Recession. It argues that a decline in quits, the relatively poor performance of the construction sector, and the extension of unemployment insurance benefits have largely driven this shift. The paper then introduces a method to estimate fitted Beveridge curves for other OECD countries for which data on vacancies and employment by job tenure are available. It shows that Portugal, Spain, and the United Kingdom also experienced rightward shifts in their Beveridge curves. Besides the United States, these are among the countries with the highest house price and construction employment declines in the sample.
... We also include a set of industry dummies to control for di¤erent levels of matching e¢ ciency across industry groups, and a set of monthly dummies to control for seasonality in job …nding probabilities. 22 Demographic information includes the age and sex of the unemployed individual. We model the e¤ect of age on the job …nding probability using a quadratic in age. ...
Article
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The matching function implies that the job …nding rate depends only on labor market tightness. We estimate such a matching function and …nd that the regression residual, or matching e¢ ciency, varies substantially over the business cycle. We argue that labor market heterogeneities are not fully captured by the matching function. Using CPS microdata over 1976-2010 and new, highly disaggregated, data on local labor market tightness, we show that matching e¢ ciency captures two factors, which, in addition to labor market tightness, a¤ect the job …nding rate: (i) composition of the unemployment pool, and (ii) dispersion in labor market conditions, the fact that tight labor markets coexist with slack ones. JEL classi…cations: J6, E24, E32 numerous seminar participants. We thank Peter Chen for excellent research assistance. The views expressed here do not necessarily reect those of the Federal Reserve Board or the Federal Reserve System. Any errors are our own.
... As for the empirical exit rate 10 Although policy experiments based on the steady-state comparisons (Section 6.2) are used to calibrate the search elasticity parameter, f, having a higher proportion of UI recipients among the unemployed in the baseline steady state is not a serious problem, because f is calibrated such that the model's responses of the average duration of unemployment among the UI-eligible to changes in the duration or amount of UI benefits are within the range of empirical estimates. profile, Fujita (2010) shows that it declines quickly for the first ten weeks and remains low except for the temporary spike around the 26th week. 11 Fig. 2 exhibits the exit rate profile generated by the model. ...
Article
February 12, 2011, First draft: January 19, 2010 This paper measures the effect of extensions of unemployment insurance (UI) benefits on the unemployment rate using a calibrated structural model that features job search and consumption-saving decision, skill depreciation, UI eligibility, and UI benefit extensions that capture what has happened during the current downturn. I find that the extensions of UI benefits contributed to an increase in the unemployment rate by 1.2 percentage points, which is about a quarter of an observed increase during the current downturn (a 5.1 percentage point increase from 4.8 percent at the end of 2007 to 9.9 percent in the fall of 2009). Among the remaining 3.9 percentage points, 2.4 percentage points are due to the large increase in the separation rate, while the staggering job-finding probability contributes 1.4 percentage points. The last extension in December 2010 moderately slows down the recovery of the unemployment rate. Specifically, the model indicates that the last extension keeps the unemployment rate higher by up to 0.4 percentage point during 2011. グローバルCOEプログラム = Global COE Program
... One distinctive feature of the US UI system is the extension of the maximum UI duration that is triggered when the unemployment rate is above a certain threshold making the policy countercyclical. While the standard UI duration is 26 on the unemployment rate is minimal. I find that once the worker heterogeneity in UI statuses and benefit levels has been accounted for, unobserved heterogeneity of workers does not account for much of the incidence of long-term unemployment. ...
Thesis
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This thesis consists of three chapters on the general equilibrium effects of unemployment insurance (UI) extensions on the macroeconomy. In Chapter 2, I quantify the effects of the increasing maximum UI duration during recessions on the drop in the correlation between output and labour productivity in the US since the early 1980’s. Using a search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I find that the model can explain over half of this drop. In Chapter 3, I investigate the impact of UI extensions on the incidence of long-term unemployment and on the unemployment duration distribution in the US. I extend the model in Chapter 2 by allowing for further worker heterogeneity and for UI benefits to depend on match quality during employment. I demonstrate that eliminating all UI extensions during the Great Recession could lower the (long-term) unemployment rate by 0.9-3.4 (4) percentage points and the average unemployment duration by 27 weeks. Once UI statuses and benefit levels are accounted for, unobserved heterogeneity of workers does not account for much of the incidence of long-term unemployment. In Chapter 4, I study the role of worker’s UI history and the responses of unemployment and its duration structure to UI extensions. Building on the model in Chapter 3, I consider three unemployment statuses: insured, formerly insured and uninsured (who never received UI). To make the model empirically consistent, I introduce a drop in job search efficiency amongst the insured unemployed workers. This feature increases the persistence of unemployment, average unemployment duration and long-term unemployment, and moderates their responses to UI extensions. Comparing to Chapter 3, the effects of removing UI extensions during the Great Recession on the unemployment duration is revised downwards to a 24-week reduction. Finally, this extension removal improves welfare but the gain subsides as the economy recovers.
... If such workers are more than averagely attached to the labor market, it is plausible that they will continue 15 A natural candidate explanation might be the role of extensions in the duration of unemployment insurance (UI) that accompany recessions, with the Great Recession of 2008 to 2010 being a prominent example. However, estimates of the impact of such UI extensions suggest a modest impact on unemployment (see Aaronson, Mazumder, and Schecter, 2010;Farber and Valletta, 2011;Fujita, 2010;Nakajima, 2010;Rothstein, 2011;Valletta and Kuang, 2010;. 16 A recent exception is Gomes (2012), who highlights the existence of history dependence in worker flows in the United Kingdom. ...
... Schulhofer-Wohl, 2012, andValletta, 2010) as well as those based on more formal labor market models with search frictions (Sterk, 2012, andKarahan andRhee, 2013). Aaronson, Mazumder, and Schecter, 2010;Farber and Valletta, 2011;Fujita, 2010;Nakajima, 2012;Rothstein, 2011;Valletta and Kuang, 2010). For example, Daly, ...
... Recent preliminary research that performs more elaborate analysis of monthly unemployment transitions, using matched CPS data and conditioning out the effects of individual characteristics and state economic conditions, finds even smaller impacts of extended UI, on the order of a 0.3 percentage point increase in the unemployment rate (Farber and Valletta 2011). However, this estimate is potentially plagued by measurement problems in the monthly CPS labor force transitions data and therefore is likely to represent a lower bound on the true effect of extended UI. 27 Other recent estimates of the effect of extended UI on the natural rate of unemployment range from 0.7 percentage points (Aaronson, Mazumder, and Schecter 2010) to a maximum of 1.7 percentage points (Fujita, 2010). 28 No quantitative analysis of this short-run effect exists. ...
Article
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This Campbell systematic review assesses the impact of exhaustion of employment benefits on the job‐finding rate for unemployed individuals. The review summarises findings from 47 studies. The majority of studies were conducted in Europe, with just two of the studies taking place in the USA and one in Canada. Participants were unemployed individuals receiving any form of time‐limited benefit during their period of being unemployed. The exhaustion of unemployment benefits encourages unemployed individuals to find work. The exhaustion of benefits results in an increase of about 80% in the exit rate from unemployment to employment. The effect starts to occur approximately two months before benefits expire, increasing as the expiration date approaches. There was no significant effect observed prior to the two months before benefits expire. There was insufficient evidence to address the secondary outcome of whether the prospect of benefit exhaustion has an impact on the exit rate from the re‐employment job, i.e. workers soon leave the new job and return to benefits. Thus, the evidence that exhaustion of unemployment benefits reduces overall unemployment level is inconclusive. Executive Summary/Abstract BACKGROUND In order to reduce unemployment levels, policymakers may wish to reduce the generosity of the unemployment system. While it may be politically intractable to lower the amount of unemployment benefits, the length of the unemployment benefit eligibility period is often used as a political instrument to create work incentives for the unemployed. If the prospect of exhaustion of unemployment benefits results in a significantly increased incentive for finding work, shortening the benefit eligibility period may reduce the share of long and unproductive job searches and thereby decrease the overall unemployment level. OBJECTIVES The primary objective of this systematic review was to study the impact of exhaustion of unemployment benefits. The primary outcome was unemployed individuals' exit rate out of unemployment and into employment prior to benefit exhaustion or shortly thereafter. To determine if benefit expiration was associated with poor job matches, the secondary outcome of exit rate from the re‐employment job was also explored. SEARCH STRATEGY Relevant studies were identified through electronic searches of bibliographic databases, government policy databanks, Internet search engines, and hand searching of core journals. We searched to identify both published and unpublished literature. The searches were international in scope. Overall, 23,991 references were screened, 454 full text reports were retrieved, and 47 studies were finally included. In addition to the general search, the reviewers have searched citations and reviews of related subjects. SELECTION CRITERIA All study designs that used a well‐defined control group were eligible for inclusion in this review. Studies that utilised qualitative approaches were not included in the review due to the absence of adequate control group conditions. DATA COLLECTION AND ANALYSIS The total number of potential relevant studies constituted 23,991 hits. A total of 47 studies, consisting of 65 papers, met the inclusion criteria and were vetted by the review authors. The final group of 47 studies were from 19 different countries. Only 21 studies provided data that permitted the calculation of an effect size for the primary outcome. Of these 21 studies, 4 studies could not be used in the data synthesis due to too high risk of bias, and a further 5 studies could not be used in the data synthesis due to overlap of data samples. Only 12 studies were therefore included in the data synthesis. Only 4 studies provided data that permitted the calculation of an effect size for the secondary outcome. Of these, 1 study could not be used in the data synthesis due to overlap of data samples. Random effects models were used to pool data across the studies. We used the point estimate of the hazard ratio. Pooled estimates were weighted with inverse variance methods, and 95% confidence intervals were used. Subgroup analysis was used to examine the impact of gender. Sensitivity analysis was used to evaluate whether the pooled effect sizes were robust across components of methodological quality and in relation to the quality of data. Funnel plots were used to assess the possibility of publication bias. RESULTS A statistically significant exhaustion effect in the month/week of benefit exhaustion was found. The effect estimate translates into an increase of approximately 80% in the exit rate from unemployment into employment. The increase in the exit rate starts even earlier: two months before benefits expire. The analysis revealed a statistically significant exhaustion effect one and two months before benefit exhaustion, though these effects were smaller than the effect in the month/week of exhaustion. The effect estimate one month before benefit exhaustion translates into a 30% increase in the exit rate from unemployment into employment. The effect estimate two months before benefit exhaustion translates into a 10% increase in the exit rate from unemployment into employment. No significant effects were found more than two months before exhaustion and no significant effects were found after benefits had expired. Thus, available evidence supports the hypothesis that there is an incentive effect of approaching benefit exhaustion but only shortly prior to exhaustion and at the time of exhaustion. The incentive effect is stronger at the time of exhaustion than one and two months before expiration. However, in all time periods, the hazard rate into employment increases from a low level. There was insufficient evidence to address whether the prospect of benefit exhaustion has an impact on the exit rate from the re‐employment job. The results are robust in the sense that sensitivity analyses of the exhaustion effect evidenced no appreciable changes in the results. We found no strong indication of the presence of publication bias. We found no evidence to support the hypothesis that the exhaustion effect differs by gender. It was not possible to examine if the exhaustion effect differs for particular age or educational groups, or if factors such as good/bad labour market conditions, high/low initial maximum entitlement, availability of alternative benefits, and whether compulsory activation is part of the institutional system have an impact on the exhaustion effect. AUTHORS' CONCLUSIONS In this review we have found clear evidence that the prospect of exhaustion of benefits results in a significantly increased incentive for finding work but only shortly (one and two months) prior to exhaustion and at the time of exhaustion. A significant benefit exhaustion effect is the result of a meta‐analysis where we pooled measures from seven different European countries, the US, and Canada. Thus, the theoretical suggestion that the prospect of exhaustion of benefits results in a significantly increased incentive for finding work has been confirmed empirically by measures from a variety of countries. Hence, shortening the benefit eligibility period may reduce the share of long and unproductive job searches. Whether the increased job finding rate close to benefit expiration implies a significant decrease in the overall unemployment level depends on how quickly those who found a job return to unemployment. We found studies from three different countries, which provided data for re‐employment exit rates. Based on this low number of studies, the evidence is inconclusive with respect to the hypothesis that the prospect of benefit exhaustion has an impact on the quality of the job measured as the exit rate of re‐employment. Thus, whether the unemployed workers who are affected may actually be worse off than policy‐makers intend them to be, in the sense that they accept “bad” jobs, has not yet been fully investigated. While additional research is needed, the findings of the current review support the hypothesis of an increased incentive for finding work as unemployment benefit exhaustion approaches.
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Chapter
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This paper argues that unemployment insurance increases labor productivity by encouraging workers to seek higher productivity jobs, and by encouraging firms to create those jobs. We use a quantitative model to investigate whether this effect is comparable in magnitude to the standard moral hazard effects of unemployment insurance. Our model economy captures the behavior of the U.S. labor market for high school graduates quite well. With unemployment insurance more generous than the current U.S. level, unemployment would increase by a magnitude similar to the micro-estimates; but because the composition of jobs also changes, total output and welfare would increase as well.
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During the current labor market downturn, unemployment duration has reached levels well above its previous highs. Analysis of unemployment data suggests that extended unemployment insurance benefits have not been important factors in the increase in the duration of unemployment or in the elevated unemployment rate.
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Using recent results in the measurement error literature, we show that the official U.S. unemployment rates substantially underestimate the true levels of unemployment, due to misclassification errors in labor force status in Current Population Surveys. Our closed-form identification of the misclassification probabilities relies on the key assumptions that the misreporting behaviors only depend on the true values and that the true labor force status dynamics satisfy a Markov-type property. During the period of 1996 to 2009, the corrected monthly unemployment rates are 1 to 4.6 percentage points (25% to 45%) higher than the official rates, and are more sensitive to changes in business cycles. Labor force participation rates, however, are not affected by this correction. We also provide results for various subgroups of the U.S. population defined by gender, race and age.
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This paper presents new evidence on why unemployment insurance (UI) benefits affect search behavior and develops a simple method of calculating the welfare gains from UI using this evidence. I show that 60 percent of the increase in unemployment durations caused by UI benefits is due to a "liquidity effect" rather than distortions on marginal incentives to search ("moral hazard") by combining two empirical strategies. First, I find that increases in benefits have much larger effects on durations for liquidity-constrained households. Second, lump-sum severance payments increase durations substantially among constrained households. I derive a formula for the optimal benefit level that depends only on the reduced-form liquidity and moral hazard elasticities. The formula implies that the optimal UI benefit level exceeds 50 percent of the wage. The "exact identification" approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives. (c) 2008 by The University of Chicago. All rights reserved..
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I study a budget-constrained, private-valuation, sealed-bid sequential auction with two incompletely-informed, risk-neutral bidders in which the valuations and income may be non-monotonic functions of a bidder's type. Multiple equilibrium symmetric bidding functions may exist that differ in allocation, efficiency and revenue. The sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders. The sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods. If a particular good, say [alpha], is allocated to a strong bidder independent of the sequence of sale, then auction revenue and the price of good [alpha] are higher when good [alpha] is sold first.
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This paper estimates the incidence of response errors in the Current Population Survey. It proposes a procedure for adjusting the Bureau of Labor Statistics' gross flows data on labor market transitions to account for these errors. Although the findings are not definitive because the procedure makes particular assumptions regarding the stochastic process generating response errors, they illustrate the potentially substantial effect of response errors on studies of labor market behavior. The adjustment procedure suggests that because measurement errors give rise to spurious transitions between labor market states, the labor market may be less dynamic than previously thought. The results imply that conventional measures may understate the duration of unemployment by as much as eighty per cent, and overstate the frequency of labor force entry and exit by even more.
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In this paper we model a job-specific shock process in the matching model of unemployment with non-cooperative wage behaviour. We obtain endogenous job creation and job destruction processes and study their properties. We show that an aggregate shock induces negative correlation between job creation and job destruction whereas a dispersion shock induces positive correlation. The job destruction process is shown to have more volatile dynamics than the job creation process. In simulations we show that an aggregate shock process proxies reasonably well the cyclical behaviour of job creation and job destruction in the United States.
The Cyclicality of Job Loss and Hiring Federal Reserve Bank of Philadelphia Working Paper No. 6-17
  • S Fujita
  • G Ramey
Fujita, S. and G. Ramey, " The Cyclicality of Job Loss and Hiring, " Federal Reserve Bank of Philadelphia Working Paper No. 6-17, November 2006.