The Effect of Unemployment Benefits on Job Search Duration and Post-Unemployment Wage

This paper introduces a structural search model that measures the effect of unemployment benefits on a worker's reservation wage. Using data from the National Longitudinal Surveys, survival analysis is used to estimate the effect of unemployment benefits on the duration of search and post-unemployment wages. If a worker's value of remaining unemployed to collect benefits is greater than the value of future wages that comes with a particular job offer, the worker will remain unemployed. The data are split for analysis based on different recessions in United States history. The goal is to see if the elevated rate of long-term unemployment observed in the 2007-2009 recession is a result of a moral hazard problem from the high level of unemployment benefits that were offered in this time period. The results show that higher unemployment benefits lead to longer search durations but do not change post-unemployment wages significantly across all three recessions that were analyzed.