  Unemployment benefits in the US were extended by up to 73 weeks during the
Great Recession. Equilibrium labor market theory indicates that extensions of
benefit duration impact not only search decisions by job seekers but also job
vacancy creations by employers. Most of the literature focused on the former to
show partial equilibrium effect that increment of unemployment benefits
discourage job search and lead to a rise in unemployment. To study the total
effect of UI benefit extensions on unemployment, I follow border county
identification strategy, take advantage of quasi-differenced specification to
control for changes in future benefit policies, apply interactive fixed effects
model to deal with unobserved shocks so as to obtain unbiased and consistent
estimation. I find that benefit extensions have a statistically significant
positive effect on unemployment, which is consistent with the results of
prevailing literature.
