Tuesday, April 20, 2010

ALMPs in a Depression

The Federal Reserve Bank of San Francisco have looked at the distortions caused by state intervention in the labour market.
Although economists have shown that extended availability of UI benefits will increase unemployment duration, the effect in the latest downturn appears quite small compared with other determinants of the unemployment rate. Our analyses suggest that extended UI benefits account for about 0.4 percentage point of the nearly 6 percentage point increase in the national unemployment rate over the past few years. It is not surprising that the disincentive effects of UI would loom small in the midst of the most severe labor market downturn since the Great Depression.
Without resorting to 'no atheists in foxholes' thinking, I wonder what this implies for the relevance of previous analyses of the effects of active labour market policies in Ireland.

(H/T: Econbrowser.)

1 comment:

Kevin Denny said...

Some of the cross-country work on unemployment benefit systems from the 1980's showed, if I remember rightly, thats its not simply [or even primarily] the simple mechanics like how much is paid or for long but also how it is implemented. Basically the tougher you are [interviewing claimants regularly to see are they seeking work] the greater is job search and the lower are durations.