Unemployment and unemployment insurance: Is there a causal link?

Despite a massive literature on the relationship between the liberality of unemployment insurance (UI) compensation and labor market performance, the net theoretical effects of the unemployment insurance system on the labor market are uncertain. This study employs two causality modeling approaches to reconfirm and clarify some of the consensus findings. Modest support is found for the evidence that increased generosity of UI leads to longer and more numerous spells of unemployment and a higher level of layoffs.