蝌蚪网

Research Highlights Featured Chart

November 26, 2025

The effects of unemployment benefit duration

What happened to the US labor market after the Emergency Unemployment Compensation Act expired after the Great Recession?

Tyler Smith

Source: REDPIXEL.PL

In December 2013, when Congress failed to reauthorize the Emergency Unemployment Compensation Act, many prominent economists predicted a substantial decline in employment and labor force participation.  

In a paper in the 蝌蚪网 Journal: Macroeconomics, authors , , and show, to the contrary, that this abrupt end to unemployment benefits actually led to a surge in employment and labor force growth, especially in states with larger cuts in benefit duration.

The sudden termination of federal support for unemployment benefits and its variation across states provided an ideal natural experiment for understanding the relationship between these benefits and the labor market.

Figure 1 from the authors’ paper shows the reform's impact through two panels tracking employment-to-population ratios and labor force participation rates. The dashed vertical line indicates the expiration of the Emergency Unemployment Compensation Act.

from Hagedorn et al. (2025)

The chart displays the difference between states that had high benefits and low benefits before the reform, normalized to zero in the fourth quarter of 2013. Prior to the reform, both panels show a steady downward trend, indicating that high-benefit states experienced persistently deteriorating labor markets relative to low-benefit states.

In 2014, the downward trend abruptly changed direction. Employment in previously high-benefit states surged by 0.008 points relative to low-benefit states within a year, completely reversing the multi-year decline. Labor force participation in generous states also recovered, rising by nearly 0.005 points relative to less generous states. This sharp discontinuity at precisely the moment of the policy change, along with the absence of other major changes in the policy environment, provides strong evidence that the benefit cut drove the employment recovery.

The researchers estimate that a 1 percent reduction in benefit duration increased employment by 0.02 log points after four quarters. Nationally, this translated to 2.5 million additional employed Americans by late 2014, accounting for 75 percent of that year's employment growth.

The findings suggest that while unemployment insurance provides crucial support during economic downturns, extended benefits may delay full recoveries.