  Unemployment insurance provides temporary cash benefits to eligible
unemployed workers. Benefits are sometimes extended by discretion during
economic slumps. In a model that features temporary benefits and sequential job
opportunities, a worker's reservation wages are studied when policymakers can
make discretionary extensions to benefits. A worker's optimal labor-supply
choice is characterized by a sequence of reservation wages that increases with
weeks of remaining benefits. The possibility of an extension raises the entire
sequence of reservation wages, meaning a worker is more selective when
accepting job offers throughout their spell of unemployment. The welfare
consequences of misperceiving the probability and length of an extension are
investigated. Properties of the model can help policymakers interpret data on
reservation wages, which may be important if extended benefits are used more
often in response to economic slumps, virus pandemics, extreme heat, and
natural disasters.
