Examines the impact of the Unemployment Insurance program in stabilizing the economy during a deep recession.
"Total U.S. Unemployment Insurance (UI) benefit payments increase automatically during recessionary periods. This increase in UI benefits during recessionary periods cushions the macro economy from further decline by helping unemployed workers partially maintain their purchasing power. By partially compensating the unemployed for the lost earnings, UI benefits help to break the negative cycle of increased unemployment leading to reduced consumption which leads to a further reduction in economic activity. The cyclical response of regular UI benefits during recessions is sometimes enhanced through federally financed UI benefit extension. Thus, the regular UI program together with federally financed temporary benefit extensions can have a substantial impact in cushioning the negative effects of recessions on the U.S. economy...This report examines the impact of the UI program in stabilizing the economy during a recession." (Abstractor: Website Staff)
Major Findings & Recommendations
• "The regular UI program closed about one-tenth (0.105) of the real gross domestic product (GDP) shortfall caused by the recession" (p.iv).
• "Extended benefits closed about one-twelfth (.085) of the real GDP shortfall caused by the recession" (p.iv).
• "Because of lags that reflect experience rating, the response of UI taxes was delayed with little increase in UI taxes occurring in 2009 and 2010. During 2008Q3-2010Q2, increased UI taxes had essentially no effect on real GDP (a gap closing proportion of -0.007)" (p.iv).
• "Combining all UI components, we find that, overall, the UI program closed 0.183 of the gap in real GDP caused by the recession. There is reason to believe, however, that for this particular recession, the UI program provided stronger stabilization of real output than in many past recessions because extended benefits responded strongly. Multiplier effects in real GDP were estimated to average 2.0 for regular UI benefits and also 2.0 for extended benefits" (p.iv). (Abstractor: Author)