Conditional Logit Unemployment

Conditional Logit Unemployment - THE LONG-TERM EFFECTS OF...

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THE LONG-TERM EFFECTS OF UNEMPLOYMENT INSURANCE: EVIDENCE FROM NEW BRUNSWICK AND MAINE, 1940-1991 Peter Kuhn, University of California, Santa Barbara Chris Riddell, Queen’s University June 18, 2009 Using data spanning half a century for adjacent jurisdictions in the U.S. and Canada, we study the long-term effects of a generous unemployment insurance (UI) program on the distribution of weeks worked. We find substantial effects. For example, in 1990, about 12.6 percent of working-age men in Maine’s northernmost counties worked between 1 and 39 weeks; just across the border in New Brunswick that figure was 25.6 percent. According to our estimates, New Brunswick’s much more generous UI system accounts for over three fourths of this differential. In part because part-year workers are drawn from both ends of the distribution of annual weeks, UI’s estimated effects on total labor supply are modest, while its effects on UI program participation and expenditures are substantial. This research was funded by the Canadian Studies Faculty Research Grant Program of the Canadian Embassy in Washington, D.C. We thank seminar participants at the University of British Columbia, University of Toronto, Queen’s University, UC Davis, The Institute for the Study of Labor (IZA), the European Economics Association meetings (Madrid), European Association of Labour Economists meetings (Lisbon); the IAB Conference on the Evaluation of Labour Market Programs (Nuremberg); and the IZA/SOLE Transatlantic Conference. We thank Matt Rice for assistance with maps and Elizabeth Beatty and Dong Hun Cho for research assistance. Background materials, plus a complete set of data and Stata do files are available at: http://www.econ.ucsb.edu/~pjkuhn/Data/NBMaine/NBMaineIndex.html .
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Most studies of the labor market effects of income support programs share the following features: they focus on short-term responses to relatively small changes in a single program parameter, in a restricted subpopulation of workers. For example, a typical research paper on the effects of unemployment insurance (UI) might examine the impact of the benefit replacement rate on unemployment durations using historical state-by-year variation in replacement rates for a sample of persons who have entered an unemployment spell. To avoid confounding the effects of such a policy change with business cycles and other factors, attention is typically restricted to measuring effects that occur within a year or less of the implementation of the policy change. 1 For the most part, the above limitations are not only unavoidable, but desirable: tightly- defined situations are likely to yield more precise estimates of policy effects. However, these limitations have led a number of critics (e.g. Murray 1994) to argue that existing econometric studies could significantly understate the long-term work incentives of income support programs.
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This note was uploaded on 12/26/2011 for the course ECON 245a taught by Professor Staff during the Fall '08 term at UCSB.

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Conditional Logit Unemployment - THE LONG-TERM EFFECTS OF...

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