Unemployment Insurance / Reduces labor force exit among the unemployed rather than changes reemployment rates

A paper by Jesse Rothstein, a professor of public policy and economics from the University of California Berkeley has made making a lot of noice on the Web.

Jesse Rothstein who is also former chief economist at the Department of Labor, provides up-to-date estimates of the ‘generousity’ effect of unemployment insurance benefits (in terms of duration, % of wages replaced, or coverage) which provide a disincentive for the unemployed to look for work and thus, increase the unemployment rate instead of contributing to lower it.

“Nearly two years after the official end of the ‘Great Recession’, the labor market remains historically weak. Many commentators have attributed the ongoing weakness in part to supply-side effects driven by dramatic expansions of Unemployment Insurance (UI) benefit durations, to as many as 99 weeks” writes Rothstein in Unemployment Insurance and Job Search in the Great Recession on brookings.edu.

His “paper investigates the effect of these UI extensions on job search and reemployment. His results: “UI extensions had significant but small negative effects on the probability that the eligible unemployed would exit unemployment, concentrated among the long-term unemployed. The estimates imply that UI benefit extensions raised the unemployment rate by only about 0.2–0.6 percentage points, much less than is implied by previous analyses. Half or more of this effect is due to reduced labor force exit among the unemployed rather than to the changes in reemployment rates that are of greater policy concern; some analyses even suggest that UI extensions, by keeping displaced workers in the labor market, may have increased the share who were later reemployed “

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