Unemployment Compensation During the Great Recession: Theory and Evidence

Abstract

The extreme labor market weakness during and after the Great Recession led to the passage of extensive federal legislation related to unemployment compensation. In this paper, we summarize that legislation and some of the research related to it. Although our particular focus is on the very long potential durations of benefits (up to 99 weeks) initially implemented in 2008-2009, we also look at a variety of other initiatives. Most of the research we review comes from the United States. But we also provide a brief look at the vast European literature that addresses many of the same policy issues.

An Unemployment Insurance Scheme for the Euro Area? A Comparison of Different Alternatives Using Micro Data

“…Our choice of the trigger is guided by the US Extended Bene…t (EB) program which permits states to use either the insured or the total unemployment rate to qualify for extended unemployment bene…ts (Nicholson et al 2014). We choose the total unemployment rate as a trigger so that activation of contingent transfers is independent from eligibility conditions of national unemployment insurance systems.…”

“…5 Note that such an EMU-UI system with contingent bene…ts could also be designed as a reinsurance scheme where national UI systems stay in place and there are no direct transfers from the EMU-UI system to the unemployed, but …nancial ‡ows between the European fund and national UI systems (Gros 2014 andDolls et al 2016). Alternative triggers for the activation of the scheme could be the short-term unemployment rate or the insured unemployment rate which is used in the US unemployment insurance system (besides the total unemployment rate) as a trigger for bene…t extension programs (Nicholson et al 2014). 6 Cf.…”

“…6 Cf. Congressional Budget O¢ ce (2012) and Nicholson et al (2014). Note that in the US regular state bene…ts are paid for a period which usually lasts not longer than 6 months.…”

An Unemployment Insurance Scheme for the Euro Area? A Comparison of Different Alternatives Using Micro Data

“…As a further variant, we simulate an EMU-UI scheme with contingent bene…ts which are activated once certain triggers are reached and analyze its budgetary and redistributive e¤ects, in particular whether such a scheme reduces cross-country transfers. Our choice of the trigger is guided by the US Extended Bene…t (EB) program which permits states to use either the insured or the total unemployment rate to qualify for extended unemployment bene…ts (Nicholson et al 2014). We choose the total unemployment rate as a trigger so that activation of contingent transfers is independent from eligibility conditions of national unemployment insurance systems.…”

Reconciling Insurance with Market Discipline: A Blueprint for a European Fiscal Union

“…In the Great Recession, the American Recovery and Reinvestment Act (ARRA) allowed the federal government to pay for all Extended Benefits in order to make the program more appealing to states(Nicholson et al, 2014).…”