A Conservative Argues For Extending Unemployment Benefits
In an ordinary post-recession world, we wouldn't need to talk about extended unemployment benefits, but times are far from ordinary.
With the House of Representatives now out of session until January and the Senate heading that way sometime early next week after approving a serious of nominations and, finally, the Ryan/Murray Budget Deal, it is inevitable that extended unemployment benefits will expire on December 28th for an estimated 1.3 million Americans. For a time at least, House Democrats were objecting to the budget deal because it failed to make any provision at all for such benefits, although they ended up voting for the plan in the end. Now. it appears that Democrats are planning to pressure Congress into passing an extension when Congress reconvenes in January by refusing to support the renewal of the Farm Bill unless it includes a retroactive extension of the benefits, but at the very least that will mean that those people still eligible for such benefits will likely go several weeks without receiving benefits. To some on the right, such as Rand Paul, this isn’t such a bad thing:
Kentucky Republican and potential 2016 presidential candidate Sen. Rand Paul said Sunday extending unemployment benefits past what the U.S. federal government has already paid would be a “disservice” to workers.
“I do support unemployment benefits for the 26 weeks that they’re paid for. If you extend it beyond that, you do a disservice to these workers,” he said, appearing on “Fox News Sunday.”
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“When you allow people to be on unemployment insurance for 99 weeks, you’re causing them to become part of this perpetual unemployed group in our economy. And it really – while it seems good, it actually does a disservice to the people you’re trying to help,” Paul said.
The American Enterprise Institute’s Michael Strain, however, argues that the issue isn’t quite that simple, and gives two reasons why unemployment benefits should be extended at least into 2014:
1. In normal times states (typically) offer 26 weeks of unemployment (“UI”) benefits to qualifying workers. During recessions, the federal government has in the past supplemented the offering of the states, providing additional weeks of UI benefits to workers who are unemployed for longer than 26 weeks. This is a reasonable and prudent measure - if 26 weeks is deemed long enough for a worker to find a job in normal economic conditions, then it’s not long enough during a recession, when jobs are much harder to come by. This is doubly true for a downturn as serious as the Great Recession. When the labor market is in better shape, of course, the emergency federal extensions are allowed to expire.
As you can see from the figure below, in the two recessions prior to the Great Recession emergency federal UI expired when the long-term unemployment rate — the share of workers who have been unemployed for 27 weeks or longer — was 1.3 percent. The long-term unemployment rate is currently at twice that level.
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Simply put, as the chart above shows, it’s much harder for the long-term unemployed to find a job right now than it has been in the past when emergency federal benefits were allowed to expire.
Here’s the chart Stain refers to:
Strain also references this chart, which shows the number of people unemployed for 27 weeks or more in every recession going back to when such statistics began to be collected after World War Two:
Strain’s second argument addresses the incentive argument that Paul raises in his argument:
To qualify for UI benefits, an unemployed worker must be available and able to work, and must be actively searching for a job (among other requirements). It is true that if we do not extend emergency federal UI benefits then the unemployment rate will likely drop - some share of today’s unemployed have remained unemployed because they are receiving UI benefits. If the checks stop, then some workers probably will take a job that they wouldn’t otherwise have taken had their UI checks continued to roll in. But other long-term unemployed workers will simply drop out of the labor force altogether, abandoning their search.
Labor-market research conducted during the Great Recession finds that extended UI benefits have lengthened unemployment spells, but not by much. And if we let emergency federal UI benefits expire, then the best guess based on the research is that more long-term unemployed workers will simply quit looking for a job and exit the labor force than will take a job they have been too choosy to take.
We should want to keep the long-term unemployed attached to the labor force until the economy picks up, more jobs become available, and they can find work. We should not want today’s long-term unemployed to permanently exit the labor force simply because their UI benefits expire. Why? Because many may end up on government assistance until they reach retirement age. That is worse for them, worse for the economy, and more expensive for the federal government over the long term.
James Pethokoukis, one of Strain’s colleagues at AEI makes these additional points:
[W]hy would ending these benefits be a good idea (a) during perhaps the weakest economic recovery, both in terms of GDP and job growth in American history, and (b) at a time when technology may be radically changing the nature of work in America? Beyond that, Washington needs to push an agenda to get the long-term jobless working, ASAP.
I’m as strong a free market guy as anyone out there, and the general argument that extended benefits of any kind tend to have a corrosive effect on those who receive them is one that has been well documented ever since Charles Murray came out with his ground-breaking research on the welfare state in Losing Ground, a treatise which in part ended up forming the basis for the welfare reforms that were passed during the Clinton Administration. Moreover, Senator Paul is absolutely right that unemployment benefits have always been considered to be a temporary solution for people who find themselves without a job through no fault of their own, with the key word being temporary. These benefits are generally not meant to be something that an unemployed person can rely upon until they find a job that they like, or one that pays exactly what they think they ought to be paid. Additionally, they are provided on the assumption that the person receiving them is engaging in an active search for employment (within reason, of course, nobody expects someone living in Michigan to be forced to look for work 1,000 miles away for example.) Finally, they are meant to be temporary so that they don’t end up becoming a permanent crutch.
In a normal post-recession job market, the argument that Senator Paul makes would be perfect sense. By traditional measures, the recession has been over for more than three years now and, ordinarily, the job creation engine of the economy would be producing more than enough jobs by now to satisfy not only the people who lost their jobs during the recession, but also those entering the job market as a result of population growth and other factors. As we’ve seen through four years of Monthly Jobs Reports, though, this is hardly a normal post-recession job market. For several years, average net job growth has averaged around 155,000 jobs per month for a given year. Even over the past several months, when we’ve received several good jobs reports, net job growth is still averaging below the level it needs to be at to keep up with population growth, meaning that we’re technically still losing ground even while we’re gaining jobs. Additionally, the long term unemployment rate remains stubbornly above 13% and labor force participation remains at historic lows, both signs that there are large segments of those who lost their jobs in the Great Recession who have simply given up. Even with the Unemployment Rate poised to dip below 7% for the first time since George W. Bush was President, it’s rather apparent that we’ve still got a long way to go. Finally, one clue as to what might happen to people who end up losing their unemployment benefits and are unable to find work can be found in the fact that enrollment under Social Security Disability has risen over the past several years. While it’s difficult to prove the hypothesis, there’s been some suggestion that the chronic unemployment situation combined with SSDI’s often fuzzy criteria for qualifying for benefits have combined be at least part of the cause of this increase. If that’s true, then it’s possible that cutting off extended unemployment benefits would just send the long-term unemployed into this and other programs as a way of supporting themselves and their families. That would just end up costing the Federal and State Government even more money than extending benefits another year would.
Intellectually, Senator Paul makes a compelling argument regarding the actual purpose of unemployment benefits and the incentives that repeatedly extending long-term benefits has the potential for creating. However, as Strain and Pethokouskis point out, these are hardly ordinary circumstances and its unclear what if anything else can be done for these people who continue to run headlong into a jobs market that is far from ideal and which, as Pethokouskis points out, may be permanently changing irrespective of the impact of the Great Recession. If there are other options, then Senator Paul should put his ideas forward. .
End times must be upon us….
I thin it’s really pathetic and sad that we have to have have this argument over and over. It really should just be a mathematical function, put into the law, which determines the length of unemployment benefits.
We know how many people are unemployed.
We know how many people are underemployed — less accurately, admittedly, but we would want to account for them because this represents lost productivity and tax revenues for decades to come.
We know how many jobs were created.
We have the basic data. We even have it based on state and metro regions, so we can tailor it better. Toss in age and ethnicity if you want to get fancy (a 30 year old white man will find it easier to get a job than a 60 year old black woman, all other things being equal, so he doesn’t need as many weeks). Even without getting fancy, you could do a better job at this than we are doing now.
I’ll say it again – do to globalization and technology there simply are not going to be enough jobs for every one who needs one. We need to have a serious discussion about how we are going to address this issue.
Kudos, Doug. Well-reasoned and well-written.
In the category of “strange things I learn accidentally,” Winston Churchill of all people believed government had a duty to be the employer of last resort. And right-wingers love them some Churchill.
@Ron Beasley:
I agree. But I don’t see a practical alternative to globalization. Erecting barriers and tariffs would ignite a trade war with possibly dire results. And we’re not going to be throwing our sabots into our iPhones, so technology will continue to move forward.
Which means we need to adapt. That would start with thinking seriously about what this all means. I hope smarter people than me are working on it.
Uncharacteristically for a conservative, Strain is making a fairness argument. There is also the argument that unemployment benefits have a high multiplier, so keeping them up increases aggregate demand and gets us all out of the recession sooner. Why we don’t just do this as a matter of course escapes me.
Facts triumph over theory every time.
@gVOR08:
Well, that’s easy to answer.
Conservatives believe poverty is the result of sin. The poor are simply less virtuous, and thus must not be encouraged. Indeed, better that they be punished.
You can see why conservatives identify with Jesus. Jesus hated poor people.
And the Republican war on the middle class continues.
The mention of Charles Murray marred an otherwise objective(ish) post.
Wow, Doug gets it exactly right on the UI issue. I was expecting conservative gobbledygook about the need to cut spending and getting “those people” off their lazy butts and back to work.Great post.
Now if Doug could only see the light on WHY the job market is so slack and HOW to fix it.
Interestingly, Strain says the following:
When conservatives start suggesting jobs programs and infrastructure spending (AKA “stimulus”) as an answer to the problem of long term unemployed, we really may be looking at the “end times”. Congrats, conservatives: You’re finally seeing the light.
Now if we can just get Conservatives to argue for basic Economics 101. If you are in a war, don’t cut taxes. If you are in a recession, don’t institute an austerity program (instead, do the opposite). Basic stuff.
It was funny in the lead up to the sequester, seeing all of the Republicans argue that cutting Defense spending will hurt the economy. I guess everyone’s a Keynesian in a foxhole.
@michael reynolds:
But wait…Jesus was poor…
@Ron Beasley:
If I could … Like +100.
It’s a lot like the serious discussion we ought to have concerning privacy in the electronic-digital world. We cannot continue to pretend to be “shocked” while we’re all in on new technology and communications media. We’ve got to have that discussion too.
@C. Clavin:
Jesus was only pretending to be poor in an effort to win over some of the 47% who, as you know, hate freedom and just want to leech off hard-working guys with inherited wealth. It was all just politics. In reality Jesus was a brilliant turn-around artist responsible for gutting dozens of businesses by off-shoring jobs to Galilean child laborers.
There is no firm link between unemployment benefits and lengthened periods of unemployment. NONE.
Of course AEI has no problem whatsoever lying about this. Anything for the cause.
@Ron Beasley:
http://www.levyinstitute.org/publications/?docid=1584
To the best of my knowledge the biggest claim for a relationship between long-term unemployment and continuing unemployment benefits past their originally intended short duration is a small one. That is, even economists who believe that there’s a relationship between the two don’t believe that the benefits are responsible for anything but a very small proportion of continuing unemployment.
In the absence of robust job growth and, let’s face it, the most recent couple of months don’t represent robust job growth, extending unemployment benefits is a necessary act of mercy.
If you’re at all interested in fiscal stimulus as a tactic for increasing growth, extending unemployment benefits is a good approach—the Keynesian multiplier is likely to be better for them than for practically any other form of stimulus.
However, we shouldn’t lose sight of the reality that unemployment benefits are only a short term patch on what’s a much larger problem. The real solution is employment.
I argued in favor of a WPA-style jobs program as far back as 2008 and to date neither party has proposed anything better. Even under the rosiest of scenarios the Republicans’ strategy would only produce more jobs very slowly if at all, of which I remain skeptical. More realistic projections would suggest little if any extra job growth from tax cuts at this point.
The Democrats’ strategy of more funding for education and “infrastructure spending”, defined as building roads and bridges, is, sadly, nostalgia masquerading as economic policy. It would have worked fine in 1930 and might even have worked in 1960 but we just don’t build roads and bridges that way anymore. We’re spending three times on education in real terms what we did twenty years ago and look around you. The extra spending isn’t producing the results we deserve to get.
So, let’s extend unemployment benefits again and then use the headroom to come up with a solution that will actually produce more jobs. I’m in favor of government as the employer of last resort, Lord Keynes’s view, but I think that government as the consumer of last resort makes a poor substitute.
@stonetools: As one of those long term unemployed, I have to say, $4 an hour??? Really? Why not just send them to the company store with company script? Why not just go straight to indentured servitude and skip all those middling stages?
@Ben Wolf: I’m not suggesting ELR but the fact remains there are simply not going to be enough jobs, Robots are not going away and globalization is not going away. With 1,000s of fiber optic cables circling the planet it’s not just manufacturing anymore, Software development, call centers and even finance can be done anywhere. So what do we do with the chronically unemployed?. When France had this problem they reduced the hours worked. ELR is not perfect but is it better than an increase of homelessness begging and even crime? War has also been used in the past but I think the day of the foot soldier is largely over and robots will be building the high tech weaponry.
@michael reynolds:
Agree this was another great post.
There are a few trends that really do need to be seriously discussed, aren’t there? Agree on your globalization position – would add that the U.S. is trying to make Every Child College Ready – a very silly position that has taken hold (particularly since the plutocrats’
tax dodgeeducational reform institutions have assumed education policy in the U.S.).Every year, I see a raft of young men and women that would make excellent, solid citizens who are just not destined for cubicle positions. They would make excellent factory or labor employees. However, their school experience features constant exhortations to GoToCollegeOrYouAreAFailure, and frankly, a lot of them are very discouraged about their life – at 17.
Don’t have Teh Solution – just hate to see solid kids who just aren’t office material pessimistic about their own future.
@Woody:
My two kids are good examples. One is on track to National Merit Scholar, perfect score in math, wants to study computer science. The other is not academic but extremely competent and hard-working, wants to be a chef. We’re actually considering moving back east to Massachusetts because they still have some vocational high schools.
The system insists on trying to kill the first one with homework and seems desperate for the other to learn algebra.
@Ron Beasley: I think there will not be enough jobs generating financial profits for someone. There are numerous tasks to enhance social well-being a capitalist is simply not going to fund because the work is profit-less. We need to revolutionize the way we think about jobs and work we consider worth doing; as it is we consider anyone who isn’t dissatisfied with what they have and isn’t continually struggling for “success” to be weird or even a subversive, so major attitude adjustments are needed or we’ll continue getting more of what we have now.
@OzarkHillbilly:
To his credit, he said the remainder of the pay would be kicked in by the gov’t. It is a direct subsidy for hiring the long-term unemployed. There are more than a few problems that would need to be overcome to make something like that work, but the idea is that workers would be taking home at least minimum wage, even if the employer isn’t paying all of it.
@Ben Wolf:
Excellent observation – the plutocrats/oligarchs of capitalism don’t think anything is worthwhile unless they can make a profit.
Giving Charles Murray that much credit is ill-advised. This is the man that keeps trying to promote racist views about IQ.
Don’t confuse correlation with causation. People are not long term unemployed because they don’t want to work; they just are looking for better work than flipping burgers.
Maybe the way for Democrats to show their real concern for the unemployed is to scrap comprehensive immigration reform and pass an enforcement only immigraiton bill that will be heavy on employer enforcement in order to create more job openings here in the U.S. and to resist the ruge to import more cheap labor if the economy ever improves.
If Speaker Boehner was really serious about cutting the budget deifict, he would bill the farm bill and put and end to the idiotic pork barrel spending.
@de stijl:
First of all, in a global economy and with easy immigraiton, there is a limit to how effective stimulus is going to be. Also, infrastrucutre spending employees few people because heavy construction is capital intensive rather than people intensive.
Second, if you want to increase employment and increase pay, then the U.S. cannot have a de facto policy of open borders and unlimited immigration. Look at the number of people working in hospitality, health care, construction, and technology who were born outside the U.S. those are the jobs that the long term unemployed cannot get because they have to complete against the million plus of legal immigraiton who come into the U.S.
Maybe if progressives did not talk so much about the jobs that Americans will not do, then working on the long term unemployment would make more sense. HOwever, if the Obama Administraiton is in charge of unemployment and government make work jobs, it will quickly turn into a dole system that will be impossible to every end.
@C. Clavin: the aca is not a republican idea. but in reality there a plenty of jobs available- if you want to work. when we elect a guy who never had to do private sector work let alone create jobs then what do you expect?
Unemployment is a sympton. What needs to be looked at is the problem. For the last years employers have cut jobs and hours. Businesses are still reluctant to do much hiring. Some ideas would be to offer some sort of tax incentives to businesses based on new hiring. Another is to drop a lot of the needless and redundant regulations that cost money, time, and jobs. One area that needs major work and investing is the infrastructure. This would create lots of necessary jobs and provide large contracts for companies. Highways need major upgrades and new technology such as built in lighting, communications, and preparations for smart cars which are just around the corner. The electrical grid is beyond its age limits and is vulnerable to a massive meltdown that could take years to repair, and would cause an apocalyptic event such as what is seen in many movies (“Doomsday” for one, but I did like some of their styles) and tv shows. Reviving the space program would create jobs, bring new advances, and inspire more interest in science. As a child we hung on to every broadcast of the Mercury, Gemini, and Apollo missions.
Our heroes were astronauts. Many children built and launched model rockets (ours were powered by firecrackers and bottle rockets; most blew up, but it was fun). Interedt in science was at a fever pitch. Now the space program has been cut to practically nothing as other countries are actually expanding theirs. Our people need to be inspired and that is just not going on.
Krugtron has argued that the unemployment rate is NOT due to structural unemployment, and has cited evidence back in the 1930s of people who were convinced that the Great Depression rates of the early 30s were the New Normal… then the Roosevelt Administration instituted Keynesian policies then the greatest Keynesian stimulus of all kicked in (WW2) and suddenly unemployment was at 3%.
Rogoff, his intellectual opponent, agrees that the problem is not structural unemployment, its just slack demand. Noah Smith has tweeted that what is happening now how the USA would have been in the 1940s had there been no World War 2.
Krugman has joked that what we need right now is an alien invasion. The government could engage in unlimited deficit spending, conservatives would stop harping on the need to “tighten our belts” and “shrink the debt”, and people would stop obsessing about the “size of Big Gumint.” Of course, we’d have to win…
@Tyrell: Rather than tax incentives for hiring, better work on the demand side for the products.
Rest of your comment I heartily endorse. Two thumbs up.