Extending Unemployment Insurance May Add 1% to Unemployment Rate

March 3rd, 2011
in econ_news

Econintersect:  Providing monetary assistance to the unemployed for long periods may benefit individuals and the aggregate economy, at least in the short run. However, there is some concern that Unemployment Insurance (UI) extensions might also provide a disincentive for working.

Some recent research suggests that longer spells of UI receipt are actually welfare enhancing for many individuals who have low levels of savings and who might otherwise be forced to take jobs that represent poor matches for their skill levels.

Follow up:

A Chicago Federal Reserve study suggests that the extension of unemployment insurance benefits during the recent economic downturn can account for somewhere in the neighborhood of 1 percentage point of the increase in the unemployment rate, with a preferred estimate of 0.8 percentage points.

The passage and creation of the Emergency Unemployment Compensation (EUC) federal program in July 2008 and subsequent extensions substantially increased the maximum number of weeks of eligibility for unemployment insurance (UI). As of February 2011, unemployed workers in 26 states and Washington, DC were eligible for a maximum of 99 weeks of UI benefits. The national average was about 95 weeks.1 By contrast, during the deep recession in 1983, the maximum potential duration of UI coverage in any state was 55 weeks.

source: Chicago Federal Reserve


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