Unemployment Insurance and Unemployment: An analysis of the aggregate demand-side effects for postwar Canada

Most of the theoretical and empirical literature on the effects of unemployment insurance (UI) during the last 25 years has focused on the supply-side implications. The object of this article is to argue that much of those discussions over the disincentive effects of UI is misdirected. Our intention is to bring back to the forefront a discussion of the positive macroeconomic role played by UI net injections in stabilizing aggregate demand. Our empirical results using Canadian data for the postwar period support this Keynesian view of the stabilizing effect of UI in contemporary economies.