Alexey Gorn from University of Liverpool will present his paper entitled "Assessing the Stabilizing Effects of Unemployment Benefit Extensions” on Wednesday, 14th of December at 17.45. The seminar will be online at the following link
Assessing the Stabilizing Effects of Unemployment Benefit Extensions
We study the stabilizing role of benefit extensions. We develop a tractable quantitative model with heterogeneous agents, search frictions, and nominal rigidities. The model allows for a stabilizing aggregate demand channel and a destabilizing labor market channel. We characterize each channel analytically and find that aggregate demand effects quantitatively prevail in the US. When feeding-in estimated shocks, the model tracks unemployment in the two most recent downturns. We find that extensions lowered unemployment by a maximum of 0.35 pp in the Great Recession, while the joint stabilizing effect of extensions and benefit compensation peaked at 1.09 pp in the pandemic.