Rafael Lalive, Camille Landais, Josef Zweimüller, 09 November 2013

In response to the Great Recession, unemployment insurance has been extended in many countries, but there is controversy over whether such extensions are optimal. Unemployment insurance entails direct fiscal costs, and encourages job seekers to prolong their search. The familiar benefit of unemployment insurance is that it allows the jobless to maintain their consumption. However, by reducing the search effort of other workers, it also improves a given worker’s chance of finding a job. Unemployment insurance extensions appear less costly when these search externalities are considered.

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CEPR Policy Research