Not only do more people lose their jobs during a recession, but the duration of unemployment also always increases, according to Rob Valletta and Katherine Kuang of the San Francisco Fed.  The number of Americans unemployed for six months or longer reached an all-time high last year.  And Valletta and Kuang have analyzed whether the availability of unemployment insurance has a significant impact on how long people remain unemployed.

For our specific test, we look at the increase in unemployment duration observed as the UI extensions were introduced and renewed in 2008 and 2009. We use the "expected unemployment duration" concept from Valletta (2005), which yields a monthly measure of the typical completed duration of unemployment for an individual who becomes unemployed in a particular month, based on the distribution of individual unemployment spells for the current and prior months. This measure more accurately reflects the overall duration of unemployment spells and changes in duration over time than do the average and median duration series published by the BLS, which are tallied from incomplete spells measured at the time each survey is conducted.

Figure 2
Unemployment duration by reason

(through December 2009, three-month moving average)

Note: Authors' calculations from CPS microdata (seasonally adjusted). The solid vertical line indicates the recession start; the dashed lines indicate effective dates for UI extensions (through 12/09).

Figure 2 displays the resulting unemployment duration series for job losers and leavers/entrants from 2005 through the end of 2009. The vertical lines identify the start of the recession and the dates for the initiation and renewal of the extended UI benefits programs. Unemployment duration rose slightly in the early phase of the recession and then increased sharply after extended UI benefits became available, reaching a high of about 35 weeks in mid-2009 before declining back to about 30 weeks by the end of the year. Notably, the increase in expected duration was similar for job losers, the group that is eligible for UI benefits, and leavers and entrants, who are ineligible.

The similar increase in duration for the UI eligible and ineligible groups suggests that extended UI had only a limited impact on unemployment duration. As of the fourth quarter of 2009, the expected duration of unemployment had risen about 18.7 weeks for job losers and about 17.1 weeks for leavers and entrants, using the years 2006-2007 as a baseline. The differential increase of 1.6 weeks for job losers is the presumed impact of extended UI benefits on unemployment duration. It is straightforward to translate this increase in unemployment duration into an effect on the unemployment rate, based on their proportional relationship and adjusted for the share of job losers in overall unemployment, which was about 67% in December 2009. The implied increase in the unemployment rate is quite small, slightly less than 0.4 percentage point, indicating that without UI extensions, the measured unemployment rate would have been 9.6% in December 2009 rather than the observed 10.0%.

Read Extended Unemployment and UI Benefits here.