Assignment #4

In Poor Economics and Freakonomics we learned that the conventional wisdom is not always the truth.  What seemed like logical and probable conclusions often are not.  Could this be the case with unemployment insurance?

Unemployment is one of the most relevant, studied and debated topics in the U.S economy today.  It is a major measurement of how our economy is preforming.  Unemployment rates have reached great heights in the last few years and have been the main focus of most policy makers and economists. Having said that, I thought now would be an interesting time more than ever to see what really helps the unemployed find employment and what hinders them. 

The benefits from unemployment insurance come in the form of payments made by the government to people who register themselves as unemployed.  These benefits act on a timeline, and at a certain point, their beneficiaries stop receiving them.  In the application process to receive benefits from unemployment insurance, recipients must state that they will seek work and provide proof of current employment

While unemployment insurance seems like a good way for the government to bring financial stability to the unemployed, could it also be creating disincentives for the unemployed to find work? Or put differently, could monetary handouts cause the unemployed to have an incentive to stay unemployed for a longer duration of time?  This is the question I am hoping to answer through my research. 

The policy implications might be that maybe the government should create other incentives besides monetary ones for the unemployed.  Maybe giving handouts isn’t the right way to motivate discouraged workers and that in fact it promotes unemployment. 

 Most of the data I have found so far on this topic are of a micro-economic sort.  One of the data sets shows the relationship between persons unemployed for 27 weeks as a percentage of total unemployment.  This data set should give me a good idea of the average duration of unemployment.  Another data set that should be informative about the duration of employment is on the average duration vs. the total U.S unemployment annual rate.  For data about unemployment benefits I will look at a set of data that shows the average duration of unemployment of persons collecting unemployment insurance benefits.  Most of this data dates back from 1970 - 1950 to 2012. 

What might make estimating the affects of unemployment insurance on the duration of unemployment difficult is the amount of other factors that might go into the job search.   I imagine it would be difficult to account for psychological factors in my regression model such as the presence of mental barriers like being discouraged.  Also during recessions, when the demand for labor becomes much smaller, it might be harder to see if unemployment insurance really has an effect.