Miquel Faig (University of Toronto), Min Zhang (SUFE), Shiny Zhang (University of Toronto)
January 29, 2013
Abstract: The extension of unemployment benefits during downturns has significantly increased the variability of unemployment and vacancies in the United States. Taking this into account reduces the value of leisure necessary to explain the wide labor market business cycles that we observe using the Mortensen and Pissarides model. In the version of this model that we analyze, unemployment benefits not only expire but they must be earned with employment. Our preferred calibration predicts that the enactment of the Emergency Unemployment Compensation program in 2008 increased the unemployment rate by 0.5 percent.
Keywords: Unemployment, Extended Benefits, State-Contingent Benefits, Search and Matching