Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties
IMF Working Papers, March 12, 2021
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- Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties
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Bibliographic details
- Authors: Klaus-Peter Hellwig
- Published: March 12, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513572680.001
Research question and data
- Objective: Estimate effects of federal unemployment benefit extensions on economic activity using county-level data.
- Data span: "three decades of county-level data".
- Publication: IMF Working Paper No. 2021/070, Pages: 35, Volume: 2021, Issue: 070, DOI: https://doi.org/10.5089/9781513572680.001, ISBN: 9781513572680, ISSN: 1018-5941.
- Author and date: Klaus-Peter Hellwig, March 12, 2021.
Identification and empirical strategy
- Main identification challenge: reverse causality because benefit extensions are a function of state unemployment rates.
- Strategy to address endogeneity:
- Use only within-state variation in outcomes to identify treatment effects.
- Differences-in-differences approach exploiting heterogeneity in county exposure to policy changes.
- Approach to channel identification:
- Estimate models separately for tradable and non-tradable sectors to distinguish demand and supply-side channels.
- Instrumental-variable use:
- Use benefit extensions as an instrument to estimate local fiscal multipliers of unemployment benefit transfers.
Key findings
- Overall impact:
- The overall impact of benefit extensions on activity is positive, pointing to strong demand effects.
- Supply-side effects:
- Even in tradable sectors, there are no negative supply-side effects from work disincentives.
- Fiscal multiplier:
- Fiscal multiplier estimate of 1.92, described as similar to estimates in the literature for other types of spending.
Subject areas and keywords
- Subjects: 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.
Source: Klaus-Peter Hellwig, "Supply and Demand Effects of Unemployment Insurance Benefit Extensions: Evidence from U.S. Counties", IMF Working Papers 2021, 070 (March 12, 2021).
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