Unemployment benefits vary

Unemployment benefits vary by state, but the typical state-mandated maximum length of unemployment benefits is around 26 weeks, and the ratio of benefits to earnings (the replacement rate) varies between one third and one half of earnings. The standard model of the aggregate labor market is based on the idea that, because it takes time for a worker to find the right job and time for a firm to find the right worker, the economy will have some positive rate of unemployment regardless of how well the economy is performing. Search is productive. In the basic version of the model, unemployment benefits raise workers' reservation wages (the minimum they are willing to accept to take a job), and hence the wages of employed workers. As a result firms have less incentive to open vacancies and unemployment increases. In particular the ratio of unemployed workers to job openings will increase.