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tors can be sustai ne d i ndefinit el y1.
Of course, if benefits are slashed, and if behavioral re-
lations remain as assumed, the process is reversed. The
average period of unemployment declines, inducing a
reduction in the steady-state unemployment total.
4. Further Implications
The question is when benefits are initially granted, does
not a response similar to the one outlined above take
place? Yes, the same process unfolds and, all other
things given, the average period of unemployment in-
creases followed by an expansion in unemployment.
Implied by our analysis is the important fact that an
increase in total unemployment does not signify an in-
crease in the rate at which workers are being laid-off.
This myth is common, especially among news commen-
tators. In the same vein, an expansion of unemployment
rolls does not imply decreases in the rate employers are
hiring new workers. Such an easy-to-make misinterpre-
tation appears to be widespread among journalists.
5. Empirical Studies
A rich literature exists on the effect of benefits on the
duration of unemployment. See, for ex ample, Moffitt and
Mickelson [8], Moffitt [9], and Katz and Meyer [10] for
studies of U.S. data, and Nickell and Layard [11] and
Machin and Manning [12] for examinations of European
data. The two most recent U.S. studies are Card and Le-
vine [2] who found that, using New Jersey data, exten-
sion of benefits by 13 weeks leads to an increase of 7%
in the number of recipients exhausting their regular (i.e.,
pre- extension benefits) and a 1 week increase in the av-
erage period of unemployment. Katz and Meyer [10],
using a different sample, reported an increase in the du-
ration of unempl oy ment of 2 to 2.5 weeks.
Finally, employing Austrian data, Lavile, van Ours
and Zweimuller [3] found that benefit increases lead to
significant increases in the steady-state unemployment
rate. They found that the most important facto r lead ing to
this increase is not the increased duration of unemploy-
ment among the existing jobless, but to the increase in
incentives for currently employed workers to leave their
jobs and receive benefits. The reader is cautioned not to
put too much credence on the comparative values of
these U.S. and European estimates. The differences in
institutions, labor laws, union policies, and employer
policies across states and countries are so vast, making
magnitude inferences hazardous.
6. A Related Hypothesis
People who take advantage of added benefits and obtain
better jobs, it is suggested, may be more efficiently em-
ployed and hence of greater value to society (Centeno
[7]). Unanswered are the questions of how to measure
efficiencies and their magnitude. However, such benefits
are potentially available anyway because job seekers
have viable alternatives. Particularly, the seeker may
accept a less satisfactory job while continuing the search
for an improved position. Many people do just that.
Consequently, society obtains these hypothesized added
efficiencies in the normal functioning of the labor market
without requiring a boost in unemployment compensa-
tion. In a related vein, university professors, even though
gainfully employed, are notoriously open to exploring
other opportunities, and their professional meetings pro-
vide, among other things, a perfect setting for such ac-
tivities. Nevertheless, Centeno [7], using the length of a
re-employed worker's subsequent job tenure as a proxy
for job quality, finds evidence to support this belief. This
proxy, however, is fraught with hazards since there are
so many important variables that influence length of
subsequent employment.
7. Conclusions
As noted by many writers, increases in unemployment
benefits can provide reduced incentives for the jobless to
seek jobs. The job seeker may increase his overall qual-
ity standards in demanding a new job, the Match-Qu ality
Hypothesis. The seeker can, and does, become more se-
lective. This, in turn, increases the duration of unem-
ployment for those receiving benefits and, all other
things given, increases the level of unemployment among
those as well. Surprisingly, only one person with the
MQH trait is needed to produce a slight bulge in unem-
ployment duration, and hence in total unemployment.
Available empirical studies provide evidence consistent
with these predictions. In addition, these behavioral traits
appear to be empirically valid regardless of the culture of
the work force.
1A physical analogy may be helpful. Consider a washbasin with a con-
stant rate of water inflow, and the same constant rate of outflow at the
drain. As long as these equal rates of flows remain stationary, the wate
level in the basin will likewise remain stationary. Now suppose we plug
the drain for a period of 10 minutes. Clearly, the water level will rise by
an amount equal to the accumulated rates of inflow over the 10-minute
interval. After the 10-minute span, the plug is removed, and if the two
rates of flows are restored to their pre-plug rates, the new higher water
level will be sustained indefinite l y. The water level is analogous to total
unemployment.
8. Acknowledgements
Professor Emeritus of Financial Economics and Jasper
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