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MIT Economists developed a new approach to unemployment insurance named “UI Policy Simulator”

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Yusuf Balogun
Yusuf Balogun
Yusuf is an aspiring Journalist and Health law expert with a special focus on technology innovations. He is a writer at Right for Education, Libertist Centre for Education, Qwenu, and Editor at Gamji Press, UDUS.

Jonathan Gruber, a professor of economics at Massachusetts Institute of Technology, MIT, has weighed a new approach to unemployment insurance in a new paper he co-author titled: Should We Have Automatic Triggers for Unemployment Benefit Duration and How Costly Would They Be?

The paper appears in the American Economic Association’s annual publication, AEA: Papers and Proceedings, with co-authors Gabriel Chodorow-Reich, a Harvard University professor of economics; Peter Ganong, an associate professor at the University of Chicago’s Harris School of Public Policy; and Gruber, the Ford Professor of Economics at MIT.

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According to the study, unemployment insurance, based on extensive modeling and examines the effects of automated unemployment insurance policies, would not cost more – or less – than the packages ultimately approved by Congress. But an automated system would provide more clarity to workers in times of economic stress.

The researchers created a model, dubbed the UI Policy Simulator, that examines state-by-state data from 1996 to 2019. The researchers used Bureau of Labor Statistics data to simulate each state’s labor market and model the outcomes of various types of unemployment insurance policies.

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For example, one set of simulations used a “Sahm trigger” (named after economist Claudia Sahm) that increased benefits after an unemployment rate of 0.5 percentage points higher than its minimum three-month average over the previous 12 months.

Another “tiered” set of simulations increased insurance coverage by 13 weeks when unemployment reached 5.5 percent in a state, 26 weeks when unemployment reached 6.5 percent, 39 weeks when unemployment reached 7.5 percent, and 52 weeks when unemployment reached 8.5 percent. Another set of simulations compared “hard” versus “soft” landings in terms of how long benefits would be extended after the unemployment rate fell below the triggering level.

Speaking on the paper, Gruber said: “There is a cost to the way Congress does it, which is, people face uncertainty,” He continued, “Right now, Congress decides at the last minute, or waits until a week or two after benefits expire to extend them. That kind of uncertainty is costly to people.”

“In some sense, the reason we never get automatic triggers is because of the way our congressional scoring works,” Gruber says. However, he observes, “If Congress is going to do it anyway, that has a zero cost from today’s perspective.” Gruber also notes: “I don’t want to [be critical] of the CBO. They’re just following their mandate.”

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