The Hagedorn, Manovskii, and Mitman working paper on the effect of unemployment insurance (UI) on employment has been getting a lot of press lately. In brief, they find that the end of the federal unemployment insurance extension accounts for about 1.8 million new jobs in 2014.
Mike Konczal does a useful deep dive on the paper here and is very skeptical of the result. In particular, he criticizes as implausible and empirically inaccurate labor market search models that imply employer monopsony power, which are essential to the plausibility of the result. These models are also essential to the revisionist literature on the minimum wage, holding that minimum wage increases do not reduce low-productivity workers’ employment. Curiously, Mike Konczal has defended search models in this aspect. He’s a smart guy and clearly thinks that applications of search theory to macroeconomic variables have problems that the application to the minimum wage doesn’t – but if search theory badly explains one phenomenon, it’s unlikely to do well explaining another. There’s a clear tension between claiming simultaneously that employer monopsony power explains why raising the minimum wage doesn’t reduce employment and that ending UI can’t have increased employment so much because employers don’t have that much monopsony power, even if the latter claim is limited to slack periods in the business cycle. (Why wouldn’t employer monopsony power be greater during slack periods in the business cycle? The Marxist concept of the “reserve army of the unemployed” comes to mind here.)
Another interesting parallel between the UI and minimum wage research is that the famous Dube et al. paper in Review of Economics and Statistics relied heavily on matched-border-county estimates, as does the Hagedorn et al. paper. Having looked at these data, I actually agree with Konczal that these models are inappropriate. The logic behind using matched border counties is that contiguous counties are alike in every relevant way other than the policy discontinuity associated with the state border (say, one county has a high minimum wage and the other does not). But border counties are actually usually quite dissimilar. Take Camden, N.J. and Philadelphia, Penn. These two counties are vastly different in size, so if Camden creates jobs at a higher rate than Philadelphia, Camden’s new jobs might still be a tiny percentage of Philadelphia’s. Yet the Dube/Hagedorn approach considers these counties to be equivalent, and takes the larger percentage increase in jobs for Camden as an indication of superior New Jersey employment policy. (See also David Neumark on empirical evidence that border counties are not appropriate control groups.)
In summary, if you are skeptical of the empirical strategy and theoretical justification of the literature saying the minimum wage has no negative employment effects, you should also be skeptical of the empirical strategy and theoretical justification of the new paper showing that unemployment insurance has big disemployment effects. If you like the Dube et al. minimum wage work, you should like the Hagedorn et al. UI paper. How many wonks are intellectually honest enough to adopt one of these two, ideologically inconvenient pairs of positions?