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The Effects of Extending Unemployment Insurance Benefits

Tuesday, July 15, 2014

The Emergency Unemployment Compensation (EUC) program, which provided additional weeks of unemployment insurance (UI) benefits to long-term unemployed workers, expired at the end of 2013. Researchers at the Federal Reserve Bank of St. Louis examined what the effect would have been if the program had expired earlier.

In a recent Economic Synopses essay, Economist Maria Canon and Senior Research Associate Yang Liu, both with the St. Louis Fed, computed unemployment rates as if the extended benefits had expired earlier and compared the behavior of workers whose UI benefits were ending in 2008 with the behavior of workers whose UI benefits were ending in 2013.1 When making their comparisons, Canon and Liu assumed that workers facing a loss of benefits in 2013 would have adjusted their job search intensity the same way workers did in 2008.2

They found that, had the EUC program expired earlier in 2013, workers with 46 or more weeks of continuous unemployment would have been 1.2 to 2.1 percentage points more likely to become re-employed. Similarly, the long-term unemployed would have been 0.4 to 0.5 percentage points more likely to exit the labor force entirely. The increases in these two probabilities result in a drop of 1.7 to 2.5 percentage points in the probability these workers would remain unemployed.

Regarding the effect on the unemployment rate, Canon and Liu found that an early expiration of the EUC program would have resulted in a drop of 0.03 to 0.05 percentage points in the observed unemployment rate in late 2013.

Canon and Liu concluded, “We find that the extension of unemployment benefits affected the labor market status of long-term unemployed workers in late 2013. Without extended UI benefits, these unemployed workers would have been more likely to be employed, more likely to exit the labor force, and on average 1.9 percent less likely to remain unemployed in the following period.”

Notes and Resources

1 It should be noted that UI benefits ended after 39 weeks in 2008 and after 46 weeks in 2013.

2 Canon and Liu also kept the economic conditions consistent, as observed in 2013.

Additional Resources

Posted In Labor  |  Tagged maria canonunemployment