Michelle Malkin and Larry Katz

Robert Waldmann

is very very late with this one. Appears that long long ago (in blogtime) Michelle Malkin said that Larry Katz once wrote that unemployment insurance causes unemployment.

I know Larry Katz, Larry Katz was my PhD co-supervisor, Larry Katz is a friend of mine and Ms Malkin, you’re no Larry Katz.

Malkin was referring to “The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment” Katz and Meyer 1990 which did indeed show that a lot of people start working again exactly when their UI benefits run out. It also showed something even more remarkable. A lot of people start working again after exactly 6 months of unemployment even if, while they were unemployed, benefits were extended. The paper is a spin off from his dissertation chapter on how, if one wants to understand unemployment duration one has to distinguish between temporary layoff unemployment and other unemployment.

That’s not so true anymore. The sad fact is that the fraction of the unemployed who are on temporary layoff is much lower now (about 10% I think). This implies much slower employment expansion in a recovery. It also means that unemployment spells are not designed in advance, and, in particular, not planned with UI rules in mind. Katz’s story about the 6 month spike even when benefits had been extended was that firms scheduled a layoff of 6 months before benefits were extended. It is true that in addition to the recall from temporary layoff spike Katz and Meyer found a smaller spike in the hazard of exiting unemployment to a new job when UI actually stopped.

The economy has changed and the effect described by Katz and Meyer is probably smaller now than it was in their data.