Do Extended Unemployment Benets Lengthen Unemployment Spells? Evidence from Recent Cycles in the U.S. Labor Market

In response to the Great Recession and sustained labor market downturn, the availability of unemployment insurance (UI) benefits was extended to new historical highs in the United States, up to 99 weeks as of late 2009 into 2012. We exploit variation in the timing and size of UI benet extensions across states to estimate the overall impact of these extensions on unemployment duration, comparing the experience with the prior extension of benets (up to 72 weeks) during the much milder downturn in the early 2000s. Using monthly matched individual data from the U.S. Current Population Survey (CPS) for the periods 2000-2005 and 2007-2012, we estimate the eects of UI extensions on unemployment transitions and duration. We rely on individual variation in benet availability based on the duration of unemployment spells and the length of UI benets available in the state and month, conditional on state economic conditions and individual characteristics. We nd a small but statistically signicant reduction in the unemployment exit rate and a small increase in the expected duration of unemployment arising from both sets of UI extensions. The eect on exits and duration is primarily due to a reduction in exits from the labor force rather than a decrease in exits to employment (the job nding rate). The magnitude of the overall eect on exits and duration is similar across the two episodes of benet extensions. Although the overall eect of UI extensions on exits from unemployment is small, it implies a substantial eect of extended benets on the steady-state share of unemployment in the cross-section that is long-term.