There has been much debate in the blogosphere about the impact of unemployment benefit extensions on long run unemployment. Elsby, Hobijn, and Sahin have written an interesting new working paper that looks at the labor market during the Great Recession. From their conclusion:
Despite the similarities of the labor market response in the early stages of the current recession with prior downturns, more recent evidence suggests there has been an important divergence with past trends. Most prominently, rates of exit of unemployed workers from joblessness have slowed to record levels, drawing into focus the importance of a rebound in outflow rates for the recovery. Recent data point to two key factors: The record rise in long-term unemployment associated with the recession is likely to yield a persistent overhang of workers facing long unemployment spells, slowing the recovery. In addition, the extension of Emergency Unemployment Compensation starting in June 2008 is likely to have led to a modest increase in long-term unemployment in the recession.