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Unemployment Insurance and Labour Productivity over the Business Cycle

Author

Listed:
  • W. Similan Rujiwattanapong

    (Centre for Macroeconomics (CFM)
    Aarhus University)

Abstract
This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions no the drop in the correlation between output and labour productivity in the U.S. since the early 1980’s – the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search. I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The later prolongs UI extensions since in the U.S. they are triggered by high unemployment.

Suggested Citation

  • W. Similan Rujiwattanapong, 2018. "Unemployment Insurance and Labour Productivity over the Business Cycle," Discussion Papers 1828, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:1828
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    References listed on IDEAS

    as
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    Cited by:

    1. Borja Jalón & Simón Sosvilla-Rivero & José A. Herce, 2017. "Countercyclical Labor Productivity: The Spanish Anomaly," IREA Working Papers 201712, University of Barcelona, Research Institute of Applied Economics, revised Jun 2017.
    2. Mitra, Aruni, 2024. "The productivity puzzle and the decline of unions," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).
    3. Similan Rujiwattanapong, 2019. "Unemployment Dynamics and Unemployment Insurance Extensions under Rational Expectations," 2019 Meeting Papers 232, Society for Economic Dynamics.
    4. Rujiwattanapong, W. Similan, 2019. "Unemployment dynamics and endogenous unemployment insurance extensions," LSE Research Online Documents on Economics 100948, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Business cycles; Labour productivity; Unemployment insurance;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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