Rujiwattanapong, WS; (2017) Essays in labour macroeconomics. Doctoral thesis , UCL (University College London).

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Abstract

This thesis consists of three chapters on the general equilibrium effects of unemployment insurance (UI) extensions on the macroeconomy. In Chapter 2, I quantify the effects of the increasing maximum UI duration during recessions on the drop in the correlation between output and labour productivity in the US since the early 1980’s. Using a search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I find that the model can explain over half of this drop. In Chapter 3, I investigate the impact of UI extensions on the incidence of long-term unemployment and on the unemployment duration distribution in the US. I extend the model in Chapter 2 by allowing for further worker heterogeneity and for UI benefits to depend on match quality during employment. I demonstrate that eliminating all UI extensions during the Great Recession could lower the (long-term) unemployment rate by 0.9-3.4 (4) percentage points and the average unemployment duration by 27 weeks. Once UI statuses and benefit levels are accounted for, unobserved heterogeneity of workers does not account for much of the incidence of long-term unemployment. In Chapter 4, I study the role of worker’s UI history and the responses of unemployment and its duration structure to UI extensions. Building on the model in Chapter 3, 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 feature increases the persistence of unemployment, average unemployment duration and long-term unemployment, and moderates their responses to UI extensions. Comparing to Chapter 3, the effects of removing UI extensions during the Great Recession on the unemployment duration is revised downwards to a 24-week reduction. Finally, this extension removal improves welfare but the gain subsides as the economy recovers.

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