The Federal Supplemental Benefits Program: An Appraisal of Emergency Extended Unemployment Insurance Benefits

The Effects of Extended Unemployment Insurance over the Business Cycle: Evidence from Regression Discontinuity Estimates Over Twenty Years

“…This result clarifies the notion that the optimal duration of UI benefits does not only depend on the the exhaustion rate (Corson and Nicholson 1982) or on the nonemployment effect (Moffitt 1985) alone, but on both. The welfare gain from UI extensions can be expressed as a function of the ratio of the effect of UI extensions on nonemployment and benefit durations.…”

“…Our formula therefore also clarifies existing 'rules of thumb' regarding the optimal exten-sion of UI benefits. According to our formula, the duration of UI should neither only be extended until the exhaustion rate is constant (Corson and Nicholson 1982), nor only extended to hold the nonemployment effect of UI constant (Moffitt 1985). Rather, setting optimal potential UI durations should take into account both factors and set durations according to the effective moral hazard parameter we propose.…”

Financing Benefit Payments

“…The main purpose of the extended benefit programs discussed in the following section has been to provide additional assistance to workers who exhaust their benefits under the regular UI program. Indeed, one of the main proposed goals of extended benefit programs has been to bring the total exhaustion rate (that is, the proportion of workers exhausting both regular and extended benefits) down roughly to the level of the regular exhaustion rate during nonrecessionary times (Might 1975;Corson and Nicholson 1982). For example, Corson and Nicholson have estimated that the emergency extended benefit pro gram that was implemented during the mid-1970s (Federal Supple mental Compensation) reduced the total exhaustion rate during the 1973-1975 recession to somewhat below the regular exhaustion rate during nonrecessionary times (Corson and Nicholson 1982, pp.…”

“…With these exceptions, all of the UI exit rate estimates are in the range of 0.1 to 0.2. Similarly, Moffitt and Nicholson (1982) obtain an estimate of 0.1 week, and translat ing the reemployment bonus impacts using an equilibrium search model yields estimates in the range of 0 to 0.2 (Davidson and Woodbury 1996). On the whole, then, the evidence suggests that increasing the potential duration of UI benefits by one week increases the expected duration of unemployment by one day (0.2 week) or less.…”

“…It seems fair to say that, as with other government programs, research and analysis have played a regrettably limited role in setting and changing the duration of UI benefits. There has, of course, been significant work on the disincentive effects of extended benefits (see the summary in table 6.6), and the U.S. Department of Labor has com missioned evaluations of the three most recent emergency extended benefit programs (Corson and Nicholson 1982;Corson, Grossman, and Nicholson 1986). However, it is also clear that the research thus far has not fully addressed some of the major issues that need to be investi gated in forming policy on the duration of benefits, such as the optimal duration of benefits, how duration should change over the business cycle, and the merits of EB triggers other than the IUR and TUR.…”