A brief note on unemployment

This graph shows the gap between the number of unemployed and the number of job openings, measured in millions. This is about the best indication there is that the time for stimulus (monetary, but especially fiscal) is not over. The good news, of course, is that the gap is shrinking, but 7.5 million more unemployed than job openings is staggering. At the current rate, we should be back to the previous high (~6 million) in about 12-18 months. What this says above all is that the assertion that we can reduce unemployment by cutting unemployment benefits, a dubious notion in the best of times, is downright insane right now.



Some literature:


Caliendo, Marco & Tatsiramos, Konstantinos & Uhlendorff, Arne, 2009.

"Benefit Duration, Unemployment Duration and Job Match Quality: A Regression-Discontinuity Approach,"
IZA Discussion Papers 
4670, Institute for the Study of Labor (IZA).

The generosity of the Unemployment Insurance system (UI) plays a central role for the job search behavior of unemployed individuals. Standard search theory predicts that an increase in UI benefit generosity, either in terms of benefit duration or entitlement, has a negative impact on the job search activities of the unemployed increasing their unemployment duration. Despite the disincentive effect of UI on unemployment duration, UI benefit generosity may also increase job match quality by allowing individuals to wait for better job offers. In this paper we use a sharp discontinuity in the maximum duration of unemployment benefits in Germany, which increases from 12 months to 18 months at the age of 45, to identify the effect of extended benefit duration on unemployment duration and post-unemployment outcomes. We find a spike in the re-employment hazard for the unemployed workers with 12 months benefit duration, which occurs around benefit exhaustion. This leads to lower unemployment duration compared to their counterparts with 18 months benefit duration. However, we also show that those unemployed who obtain jobs close to and after the time when benefits are exhausted are significantly more likely to exit subsequent employment and receive lower wages compared to their counterparts with extended benefit duration.