In response to the weak labor market conditions, the U.S. government has greatly expanded the entitlement period of unemployment insurance (UI) benefits. In this article, Shigeru Fujita reviews some of the academic literature on the economic effects of UI benefits. On the one hand, UI can improve people’s well-being because it helps them avoid a large drop in consumption in the face of job losses when job losers do not have enough savings. On the other hand, there is a concern that it might produce an adverse effect on the incentive to look for a job. The author covers leading theoretical as well as empirical studies, which are useful in evaluating the recent expansion of unemployment insurance benefits.
This article appeared in the Fourth Quarter 2010 edition of Business Review.
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