Question

In a recent study for the National Bureau of Economic Research​ (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining​ counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits.​The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so? a. With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment. b. The longer duration of unemployment benefits encouraged those workers who were unemployed to seek work sooner to avoid having their skills diminish, which increased the time for job search, leading to higher unemployment c. The longer the duration of benefits, the lower the wages become that firms will offer new workers. This caused upward wage rigidly, causing unemployment to rise dramatically. d. All of the above.

Answer 1

The correct answer is letter "A": With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.

Step-by-step explanation:

The Great Recession (2007-2009) is the period in U.S. economics when it suffered a high-scale dwindle as a result of the collapse in the real estate market and the subprime mortgage crisis. The financial sector collapsed as well forcing some banks to declare bankruptcy.

In this context, long-lasting unemployment benefits were provided such us downward wage rigidity, which implied employers were unable to reduce the salaries in dollar terms. By doing that, having low to none income, in order to meet their income objectives, major organizations had to lay off employees directly causing the rate of unemployment increase.