Young Labour Economist Prize 2023 by the European Association of Labour Economists
EALE Tour 2024
Social benefits are the fundamental reason why unemployment insurance exists, and are therefore central to understanding whether benefit generosity should vary with economic conditions. Yet, little is known about how the social benefits of unemployment insurance evolve over the business cycle, even though downturns may change both the magnitude of consumption losses upon unemployment and who experiences them. I propose and empirically evaluate a framework to assess the welfare effects of extending benefit duration, accounting for selection into unemployment induced by changing work opportunities. Welfare effects depend on social preferences for redistribution across unemployed types, consumption-smoothing gains, and efficiency costs. Exploiting regional and time variation in Spain, where the unemployment rate tripled, I examine the evolution of these components. A newly collected survey demonstrates stronger support for providing benefits to high-willingness-to-work unemployed, whose share increases in downturns. Consumption data reveal larger drops upon job loss when unemployment is high. Regression-discontinuity estimates using administrative records show efficiency costs fall in recessions. Taken together, results indicate that benefit duration should have been longer at the Great Recession's peak than before. Three quarters of the welfare gain from shifting benefit duration from booms to recessions comes from changes in social benefits, rather than from lower efficiency costs. More broadly, these findings imply that existing literature overlooking changes in social benefits understates the optimal duration cyclicality.
