Consider the impact of unemployment benefits on the labour market. How is a more
ID: 1238158 • Letter: C
Question
Consider the impact of unemployment benefits on the labour market. How is a more generous unemployment benefit likely to affect wage setting, search effort among unemployed job searchers, and the rate of unemployment? What do we know from empirical research about the impact of more generous unemployment benefits on the duration of unemployment? What do we know about the escape rate from unemployment in case of time limited unemployment benefits? How has empirical studies gone about to test the implications of more generous unemployment benefits on the probability of leaving unemployment for a job?Explanation / Answer
You are working a job that is paying $8/hr. You hate your boss; you hate your co-workers; you hate your customers; heck you even hate working in general. But how could you quit? You obviously need money to support yourself and/or your family. What?? Unemployment benefits are how much?? If the government were to offer generous unemployment benefits, there is likely to be an increase in the unemployment rate as the belief will be that a formidable "salary" could be earned by receiving said benefits. For the market to be able to compete with the generous benefits, the wages offered would need to be substantially higher than what is capable of being earned in the unemployment "market". In addition, people who are currently unemployed will find it less meaningful to find jobs. Why search when the "reward" of staying at home and collecting a check is that much easier.