Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties

March 12, 2021

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Format: Chicago

Klaus-Peter Hellwig. Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties, (USA: International Monetary Fund, 2021) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

I use three decades of county-level data to estimate the effects of federal unemployment benefit extensions on economic activity. To overcome the reverse causality coming from the fact that benefit extensions are a function of state unemployment rates, I only use the within-state variation in outcomes to identify treatment effects. Identification rests on a differences-in-differences approach which exploits heterogeneity in county exposure to policy changes. To distinguish demand and supply-side channels, I estimate the model separately for tradable and non-tradable sectors. Finally I use benefit extensions as an instrument to estimate local fiscal multipliers of unemployment benefit transfers. I find (i) that the overall impact of benefit extensions on activity is positive, pointing to strong demand effects; (ii) that, even in tradable sectors, there are no negative supply-side effects from work disincentives; and (iii) a fiscal multiplier estimate of 1.92, similar to estimates in the literature for other types of spending.

Subject: Economic sectors, Employment, Financial crises, Labor, Labor markets, Unemployment, Unemployment rate

Keywords: Automatic stabilizers, Benefit duration, Benefit extension, Benefit transfer, Emergency unemployment compensation program, Employment, Fiscal multiplier, Labor markets, State UI fund, State UI scheme, Unemployment, Unemployment rate

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/070
Stock No:

WPIEA2021070
ISBN:

9781513572680
ISSN:

1018-5941

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