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  • Long-term Unemployment Dynamics and Unemployment Insurance Extensions (2016)
    This paper investigates the impact of unemployment insurance (UI) extensions on the incidence of long-term unemployment and on the unemployment duration distribution in the US. Using a search and matching model with endogenous separations, variable job search intensity, on-the-job search and worker heterogeneity, I allow for the maximum UI duration to depend on unemployment rate and for UI benefits to depend on match quality during employment. The model can account for a large fraction of the observed rise in the long-term unemployment and realistic dynamics of the unemployment duration distribution during the Great Recession. I show that eliminating all UI extensions (64-week reduction) during the Great Recession could potentially lower the unemployment rate by 0.9-3.4 percentage points primarily via the response of job separations. At the same time, it could drastically reduce the long-term unemployment rate by roughly 4 percentage points and the average unemployment duration by up to 27 weeks via the response of job search behavior of insured unemployed workers. I find that once the worker heterogeneity in UI statuses and benefit levels has been accounted for, unobserved heterogeneity of workers has a small role for explaining the incidence of long-term unemployment.

  • Unemployment Insurance and Labour Productivity over the Business Cycle (2016) (submitted)
    This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions in the U.S. on the cyclical variations in labour productivity. I study a search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search. I demonstrate that the model can explain over half of the drop in the correlation between output and labour productivity that can be observed in the U.S. since the early 1980’s. UI extensions cause workers to be more selective with respect to job offers, and to exert less job search efforts. The former channel raises the overall productivity in recessions whilst the latter prolongs the duration of the extension (and its effect) as the UI duration depends on the unemployment rate. The model also performs well in matching key statistics in the labour markets.

  • The Persistence of Unemployment and the Role of Unemployment Insurance History (2017) (version coming soon)
    This paper studies the role of worker's unemployment insurance (UI) history and the response of unemployment and its duration structure to UI extensions. Building on Rujiwattanapong (2016)'s general equilibrium search and matching model with endogenous job separation, variable search intensity with on-the-job search, worker heterogeneity and automatic UI extension, I consider three unemployment statuses: insured, formerly insured and uninsured (who never received UI). To make the model empirically consistent, I introduce a drop in job search efficiency amongst the insured unemployed workers. This new feature increases the persistence of total unemployment, average unemployment duration and long-term unemployment and at the same time moderate their responses to UI extensions. Comparing to results from Rujiwattanapong (2016) where the search efficiency is constant throughout an unemployment spell, UI extensions during the Great Recession still account for a 0.9-3.4 percentage point increase in the unemployment rate but its effect on the average unemployment duration is revised downwards to an increase of 24 weeks (instead of 27 weeks). Finally, I found that removing all UI extensions during the Great Recession improves welfare but the gain subsides as the economy recovers.

  • Labour Market Shocks and the Dynamics of the Aggregate Saving Rate in General Equilibrium (2015) (version coming soon)
    This paper studies the effects of shocks to the flow hazards into and out of unemployment on the aggregate household saving rate, and attempts to explain the spike in the US saving rate during the Great Recession with these shocks. The results are obtained from a Dynamic Stochastic General Equilibrium model under incomplete markets and borrowing constraints similar to Krusell and Smith (1998) using extended path algorithm, perturbation method and approximate aggregation. It is found that a negative job finding shock and a positive job separation shock simultaneously and separately contribute to an increase in the saving rate. Shocks to job finding probability create a more drastic and persistent impact on the saving rate than do shocks to job separation probability. The model can generate saving rates that show strikingly similar dynamics to the US saving rate; however, the magnitude of responses from the model is quite far from the data. Job finding shocks alone explain almost all the dynamics of the saving rate during the Great Recession while both shocks need to be in place to explain saving movements during non-recessionary periods. The same analysis under the complete market assumption yields results completely opposite to the data.

W Similan Rujiwattanapong,
14 Nov 2016, 17:11
W Similan Rujiwattanapong,
18 Dec 2016, 16:16