DP14786 The Safety Net as a Springboard

Author(s): Domenico Ferraro, Nir Jaimovich, Francesca Molinari, Cristobal Young
Publication Date: May 2020
Programme Areas: Labour Economics, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14786

We estimate the impact of unemployment insurance benefits on the probability that unemployed individuals engage in active search. To do so, we use unique administrative data from random U.S. Department of Labor audits of individuals' search activity. Exploiting plausibly exogenous variation in the generosity of unemployment benefits, conditional on previous wages, we find that increases in such benefits raise the likelihood of active search. We develop a novel general equilibrium search-and-matching model that aligns with these findings, and use it to quantify the opposing effects of increases in unemployment benefits on the search likelihood and unemployment duration.