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We measure the aggregate effect of unemployment benefit duration
on employment and the labor force. We exploit the variation induced
by Congress’ failure in December 2013 to reauthorize the
unprecedented benefit extensions introduced during the Great Recession.
Federal benefit extensions that ranged from 0 to 47 weeks
across U.S. states were abruptly cut to zero. In sharp contrast to
their typical dynamics, labor force and employment growth accelerated
sharply in states with larger cuts in benefit duration. These
findings are consistent with the equilibrium search framework that
assigns an important role to endogenous job creation.
