Unemployment Benefits, Unemployment Duration, and Post-Unemployment Jobs: A Regression Discontinuity Approach by Rafael Lalive. Published in volume 97, issue 2, pages 108-112 of American Economic Review, May 2007

We provide evidence that unemployment insurance affects equilibrium conditions in the labor market, which creates significant “market externalities.” We provide a framework for identification of such equilibrium effects and implement it using the Regional Extension Benefit Program (REBP) in Austria which extended the duration of UI benefits for a large group of eligible workers in selected regions of Austria. We show that non-eligible workers in REBP regions have higher job finding rates, lower unemployment durations, and a lower risk of long-term unemployment. We discuss the implications of our results for optimal UI policy.