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Brooks Wilson's Economics Blog: Measuring Changes in the Duration of Unemployment

Wednesday, September 8, 2010

Measuring Changes in the Duration of Unemployment

In “The Folly of Subsidizing Unemployment,” Robert Barro attributes an increase in the observed duration of unemployment during the Great Recession to the extension of unemployment benefits from 26 to 99 weeks.  He supports his hypothesis by observing that the current recession is the only one in which benefits have been extended and that the duration of unemployment has been much greater.
A second method for measuring the impact of extending unemployment benefits on the duration of unemployment exists if states are allowed to follow different rules when awarding benefits.  Have any states declined to extend benefits, reduced the benefits over time or offered bonuses to the unemployed if they find work quickly?  If so, we can compare the duration of unemployment conditioned on the generosity of the state’s unemployment programs.  States with more generous programs should experience higher duration of unemployment if Barro is correct. 

The second method does have flaws.  The logic of the argument might reverse causality.  Perhaps the states with the longest duration of unemployment are the ones that extended benefits.  If this were the case and states can vary in allocation unemployment, then we would expect states with the longest duration to have increased the generosity of benefits.

Any thoughts?
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1 comment:

  1. Measuring unemployement is not an easy thing to measure. Because you have to figure out who is really unemployed and who is considered part of the "labor force". This is because people flow in and out of the labor force.