Extending Unemployment Benefits Doesn't Work

In 2001, the liberal British economist Dr. Richard Layard wrote:

There is ample evidence that unemployment (and employment) is affected by how the unemployed are treated. Other things equal, countries that offer unemployment benefits of long duration have more unemployment (and less employment). This is because employment depends on the effective supply of labour.

Layard wrote those wordst fully seven years before Congress passed the Emergency Unemployment Compensation Act of 2008. The new law dramatically extended the duration of unemployment benefits, from (typically) 26 weeks to as much as 39 weeks. Democrats controlled both houses of Congress in 2008.

Then came the American Recovery & Reinvestment Act (ARRA) of 2009, Dear Leader Barack Hussein Obama's famous “stimulus bill,” that further extended the duration of unemployment benefits, so that by the end of 2013 the typical duration of unemployment benefits was 99 weeks. Further, the ARRA expanded eligibility for unemployment benefits to part-time workers, and exempted the first $2,400 of unemployment benefits from taxation.

Economists criticized these extensions and expansions, saying that they encouraged people to remain unemployed, to stay out of the labor force. Obama pushed for the unemployment benefits extension and expansion throughout his first term. 

In December 2013 the Senate voted to renew the extensions, but the Republican-controlled House of Representatives allowed the benefit extension to expire. To say that Obama was not pleased would be an understatement. As usual, he blamed the Republicans:

Just a few days after Christmas, more than one million of our fellow Americans lost a vital economic lifeline -- the temporary insurance that helps folks make ends meet while they look for a job. Republicans in Congress went home for the holidays and let that lifeline expire. And for many of their constituents who are unemployed through no fault of their own, [Republicans] will leave them with no income at all.  And denying families that security is just plain cruel.

Key phrase: “look for a job.” Under Obama's unemployment and welfare policies, that didn't happen.   Most just dropped out of the labor force and went on various forms of welfare.

Obama's Council of Economic Advisers predicted that the expiration of the benefits extension would lower employment by 240,000. And the supposedly nonpartisan Congressional Budget Office estimated that employment would fall by 200,000. 

Those favoring extended benefits then (and now) claimed that the extended benefits were necessary as long as the long-term unemployment rate remained high. They contended that the long-term unemployed would drop out of the labor force if the extended benefits were discontinued. Labor force evidence that Obama and his advisers refused to acknowledge was (and is) easily available. The workforce participation rate in 2009 was about 66 percent. It fell during Obama's unemployment policy to 62.8 percent in December 2013. 

But... the predicted job losses and unemployment increases never occurred. Instead, the unemployment rate dropped from 6.7% in December 2013 to 5.6% in December 2014. Yes, those unemployment percentages are, at best, bogus, but for comparison purposes they provide a basis to illustrate just how bogus Obama and his "Yes" men (and women) are.  Further, the labor force rate has stabilized at about 62.9 percent since January 2014, when benefits were not extended.

Republicans were correct, Democrats were (as usual) incorrect. A report by the National Bureau of Economic Research (NBER) says that the House of Representatives was correct, that Obama and his sycophants were wrong.

The NBER report, authored by Iourii Manovskii and Kurt Mitma of the University of Pennsylvania's economics department, Fatih Karahan of the Federal Reserve Bank of New York, and Marcus Hagedorn, a University of Oslo economist, says that the expiration of extended unemployment benefits actually increased job creation, labor-force participation, and hiring. NBER data show that when temporary unemployment benefits become (for all practical purposes) permanent welfare, the benefits become a drag on the labor market. In 2013, states with generous jobless benefits created fewer jobs than the national average. In 2014, after those same states reduced benefits, their job creation numbers far exceeded the national average. When extended unemployment benefits were no longer available, when the long-term unemployed had to get a job, they got a job.

Says the NBER report:

Most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility.

The negative effects of unemployment benefit extensions on employment far outweighs the potential stimulative effects often ascribed to this policy.

The report indicates the recent employment boom, the one Obama loudly touts, appears to be largely due to the expiration of the unemployment benefit extensions that Obama was so adamant about continuing.

Were long-term unemployment benefits necessary for some long-term unemployed people? Certainly, but not for all long-term unemployed. People who refused to work for a little bit more than jobless benefits paid, or people who supplemented unemployment benefits with under-the-table work, saw no reason to reenter the workforce when they could be paid to not work.

And, right on cue, that always objective Media Matters weighed in. In an article titled "Right-Wing Media Use Flawed Study To Attack Unemployment Benefits" it offers explanations of how the NBER was wrong and how other studies, ones it cites, got it right. My personal favorite is "Did Ending Unemployment Insurance Extensions Really Create 1.8 Million Jobs?" in which author Mike Konczal touted the positive effects of unemployment insurance.

Try as they may, Media Matters attempts to discredit the NBER report. However, all of the reasons offered and articles cited by Media Matters can be summarily dismissed by asking one simple question: "If, as Obama claims, the labor market has improved significantly, why did it improve only after unemployment benefits extensions were ended?"

Will politicians learn from Layard and the NBER report? Democrats -– never will they admit to it; they want votes. Republicans -- not until forced by economics to; they want votes as well. Media Matters and the MSM -- not as long as they can get liberals elected.

But that's just my opinion.

Dr. Warren Beatty (not the liberal actor) earned a Ph.D. in quantitative management and statistics from Florida State University.  He was a (very conservative) professor, and specialized in using statistics to assist/support decision-making.  He is now retired.  Dr. Beatty is a veteran.

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