Suppose we wanted to know what the effect of extending the maximum number of weeks of unemployment insurance (UI) benefits was on the duration of unemployment. A researcher from a university in California suggests that more weeks of UI benefits leads to faster reemployment. His strategy was to compare unemployment durations in states with more weeks of UI benefits to durations in states with fewer weeks of UI benefits.
1) Why might this approach lead to the wrong answer? Another researcher suggests using a randomized control trial (i.e., experiment) to estimate the effect of the number of weeks of UI benefits.
2) List at least two weaknesses of this approach:
3) Suggest an alternative approach to estimating the effect of the number of weeks of UI benefits.