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Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties
Author: Klaus-Peter Hellwig
Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 070
Language:
English
Publication Date:
12 Mar 2021
DOI:
https://doi.org/10.5089/9781513572680.001
ISBN:
9781513572680
ISSN:
1018-5941
Pages:
35
Keywords:
Automatic stabilizers; Fiscal multiplier; Labor markets; benefit extension; State UI scheme; benefit duration; emergency unemployment compensation program; benefit transfer; state UI fund; Unemployment; Employment; Unemployment rate
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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.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund