Thursday, March 18, 2010

Estimates of How Much Unemployment is Due to UI Expansion

Dr. Feroli at JPMorgan: extended benefits account for 1.5 percentage points of the current unemployment rate

Professor Robert Shimer: all benefits account for 1 - 1.5 percentage points of the current unemployment rate

Federal Reserve Board: "The several extensions of emergency unemployment benefits appear to have raised the measured unemployment rate" (Jan 2010 FOMC minutes). They cite other estimates, which could overlap with the above.

UPDATE: Econbrowser claims that raising the unemployment rate might enhance welfare -- for a more detailed discussion of that remarkable claim, see this short post.

For my own decomposition of the "offsetting" effects of UI, see this post from last summer.

I am well aware that the Meyer study and the study of Pittsburgh are "partial equilibrium" -- in theory it is conceivable that one person's work behavior is offset (or more than offset) by the work decisions of others. Indeed, I have given a great deal of attention to empirically estimating the feedback effect, and found (in this paper, this post, and the posts linked therein) that an increase in labor supply of one group is not fully offset by decreases in labor demand for other groups, but rather increases aggregate labor usage (as partial equilibrium theory would predict).

Although a bunch of economists proclaim that UI's general equilibrium effect offsets its partial equilibrium effect, they have put forward zero evidence in support.

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