Tuesday, October 21, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Did expiring benefits drive down the jobless rate?

By
From page A8 | August 11, 2014 |

In January, I wrote a column questioning the morality of continuing to extend jobless payments to Americans looking for work.

It didn’t come from a coldhearted supposition that unemployed people don’t deserve benefits.

I was contemplating the results of a recent study by four distinguished economists, released through the National Bureau of Economic Research. The study concluded that “unemployment benefit extensions can account for most of the persistently high unemployment after the Great Recession.”

That may seem counterintuitive to people who argue that unemployment benefits create jobs by giving the unemployed money to spend. The bureau’s study found that in fact, these benefits are more likely to be a job killer.

Using a novel method of empirical modeling, the authors found that extensions of long-term unemployment benefits may have perpetuated unemployment in recent years and made the prospects of finding jobs even worse.

The economists argued that continuing to extend benefits forces businesses to raise wages to incentivize workers to take vacant jobs.

And with decreased profit margins, businesses create fewer positions.

It’s a logical conclusion and hardly one motivated by disdain for Americans searching for work.

The study was released at the peak of a heated congressional debate about extending long-term unemployment insurance yet again. Those on the left who supported the extensions accused Republicans, who did not, of being heartless.

But maybe Republicans were just being smart.

As Congress could not come to a resolution on benefits extensions, they expired at the end of 2013.

Since then, we have more economic data, much of it reinforcing the plainly logical conclusion of the bureau’s study: People are more likely to seek and secure jobs after the benefits run out.

In July, the Federal Reserve Bank of St. Louis looked at how the expiration of long-term unemployment benefits affected the unemployment rate in early 2014. The study concluded, as the bureau’s paper postulated, that it probably contributed to a reduction in the number of out-of-work Americans.

“Without extended UI benefits, these unemployed workers would have been more likely to be employed . . .  and on average 1.9 percent less likely to remain unemployed in the following period,” the Reserve Bank wrote.

Similarly, many analysts have pointed to North Carolina’s experience.

Long-term unemployment benefits ended in the Tar Heel State in July 2013, six months before benefits expired for other states. As The Wall Street Journal reported, “The jobless rate plummeted from 9.5 percent at the start of 2013 to 6.9 percent at the end, as 110,930 people left the labor force and overall employment rose by 13,414.”

The Obama administration has been touting this year’s steady uptick in jobs numbers, which topped 200,000 for the sixth month in a row in July. Of course, this is good news for all Americans, regardless of political stripe.

But it’s important for us to consider what might be contributing to this success. Like it or not, the expiration of long-term unemployment benefits probably played a part.

This recovery has been one of the longest and slowest on record.

July’s report from the Bureau of Labor Statistics shows that the real unemployment rate – which includes short-term discouraged and other marginally attached workers as well as those forced to work part time because they cannot find full-time employment – is 12.2 percent, or double the reported July rate.

But over the past year, long-term unemployment has dropped 25 percent, by about 1.1 million workers. It’s worth wondering why.

Of all the policy areas subject to partisan back-and-forth these days, perhaps this is one where conservatives have gotten the better part of the argument.

Cynthia M. Allen is a columnist for the Fort Worth Star-Telegram. Readers may send her email at cmallen@star-telegram.com.

Cynthia M. Allen

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Discussion | 23 comments

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  • rlw895August 11, 2014 - 6:20 am

    No argument from me. Unemployment benefits have to stop at some point. There still needs to be a "social safety net," but unemployment benefits should be temporary.

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  • Tired-of-itAugust 11, 2014 - 7:05 am

    Rlw: So, since you believe everyone should get assistance so they won't die, is it your solution to remove people from unemployment and put them in the welfare system? Really? It seems you missed the point of the study.

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  • rlw895August 11, 2014 - 11:30 pm

    No, I don't think so. What point do you think I missed?

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  • Tired-of-itAugust 12, 2014 - 8:27 am

    The point that if people stop receiving unemployment they will return to work. Removing them from unemployment and giving them a "social safety net" still wouldn't encourage them to find work, which was the point of the study. Once again, you're too quick to give hard working people's money to those that won't work.

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  • Mr. PracticalAugust 12, 2014 - 8:41 am

    FUTA is conceptually a worthwhile program. Being able to keep a household going during periods of unemployment is a good thing. Here's the problems.... 1) No accountability that the beneficiary is making an effort to look for work. 2) FUTA is a Federally mandated program that the states administrate. The extended benefit period drained the state's account. But the Feds said, "no problem, you can borrow from us." Now California owes $11 billion. How do you propose we pay that back? 3) Employees have no skin in the game. FUTA is funded entirely by the employer. This should work like SSI and the cost split with the employee.

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  • rlw895August 17, 2014 - 3:05 pm

    TOI: No, I got that. But what you don't get is that someone who has worked and enjoyed the income is not likely to want to stay on public assistance if it is at the subsistence level. It's nothing like being on unemployment. I wouldn't worry about it being a disincentive to work, not like unemployment might be.

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  • Mr. PracticalAugust 17, 2014 - 3:39 pm

    rlw, it cuts both ways. The majority (and my hunch is a slight majority) do try to go back to work and look for work diligently. There are way too many that don't try at all until benefits are about to expire. There is another group that won't widen the net. They won't apply for or accept work below their previous pay, or not in their previous industry. Employees do not contribute towards the unemployment benefits. It is a tax on employers. If you're receiving benefits, your full-time job should be looking for work. If you receive an offer, even at at a low wage, you are obligated to accept that work. Anything less is abusing the system. There is no accountability to prove you're looking for work beyond checking a box on a mailing from EDD acknowledging that you did look for work. TOI is correct in the case of many people. Stopping the extended benefits will in fact get more people back to work. This is another example of this administration hurting economic recovery.

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  • rlw895August 17, 2014 - 5:29 pm

    Mr.P: We're talking nuance here. There was general agreement to extend unemployment benefits the first time, and less support each time thereafter. Maybe it went too long, but not much. In any event, it's within the range of error we should be able to accept.

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  • Mr. PracticalAugust 17, 2014 - 5:43 pm

    rlw, my point isn't regarding the benefit period. It's the lack of accountability. For every person that gets a check that didn't look for work that period, we could pay someone longer that is trying to better their situation but hasn't had any luck. It should also work like SSI. Employer matches the employee contribution.

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  • rlw895August 17, 2014 - 9:52 pm

    Mr.P: I'm good with that, but it would require greater government expense to implement and monitor. Case workers with reasonable case loads. Then we're back to bigger government. Will you agree to that?

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  • JagAugust 17, 2014 - 10:06 pm

    One more thing that could maybe done is extend unemployment according to the county, For example I remember once we started to recover San Francisco County was around 7% while Solano county the worst in the Bay Area was still up around 12%

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  • Mr. PracticalAugust 18, 2014 - 7:22 am

    rlw, since it's a state program (mandated by the feds and none of their business), I have less concern philosophically with growing government. That being said, California is bloated and has grown way to big, particularly with its regulatory agencies. I'm not sure if the administration of benefits is paid for from the taxes collected. If it is, than I doubt that reasonable accountability would require more cost. I'll crunch numbers tonight and see what it would take.

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  • rlw895August 18, 2014 - 8:19 am

    Mr.P: A lot can be done with technology. Maybe no one has tried yet.

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  • Mr. PracticalAugust 18, 2014 - 9:38 am

    rlw, absolutely. During the height of unemployment I was laid off after the company I worked for in NAPA was acquired by McAfee. They closed the two offices we had in California and consolidated to existing offices in Texas. It was extremely difficult to find work. It took me seven months. Here's how the unemployment process worked. After your claim is approved, you receive a debit card and all payments are applied to that account. That was a great idea, Rather than mailing physical checks. However, the notice they send each two weeks where you have to report whether or not you looked for work or found work, is still done by physical mail. They could certainly email that report with a link to an online form. I am sure there are a lot of other improvements that could be made through technology.

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  • BobAugust 11, 2014 - 6:49 am

    I agree, why work if they are being handed money. When ever I had to fall back on unemployment there was not enough to keep the family going, I'd look for work but I was over qualified for every job I applied for until construction picked up again. With plastic cards, direct deposit, the Feds have made it too easy, go back to standing in long lines and spending days getting your check then stand in lines to cash it at the next window, that might make people want to go back to work.

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  • JagAugust 11, 2014 - 9:00 am

    see sometimes being the party of NO is a good thing

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  • Mike KirchubelAugust 11, 2014 - 9:26 am

    The Tar-Heel State example she uses says that employment rose by 13,414 while those who left the workforce totaled 110,930. I would say that is not a good example of how this "cut benefits = increased employment" hypothesis works. I would call that "grabbing at straws."

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  • Mr. PracticalAugust 11, 2014 - 6:50 pm

    Mike, isn't that the same math the administration has been using when quoting the unemployment numbers? The point is, many people receiving the extended unemployment benefits are not looking for work until the benefits are about to expire. I got laid off at the height of unemployment. I applied for unemployment benefits for the first time in my life. I believed, that while I collected those benefits, that were paid for by a mandated tax on employers, that I had an obligation to make looking for a job my full-time job. I also had to widen the net of jobs I would accept. I stayed in touch with many of the people that were also laid off with me (btw.. the company moved to Texas - shocking!). Many did not bother looking for another job while receiving unemployment. There is no accountability to the program. You receive an application every two weeks. You check a box that says, "I looked for work" and the checks keep coming. When the extended benefits were extended the first time, Congress should have legislated accountability at the same time. It would have paid for itself. This column has complete credibility. The extended benefits also bankrupted the unemployment accounts in most states. California had to borrow $11 billion from the feds to pay those claims. Now, the state is proposing to pay the debt solely on another increase in the unemployment tax. That would put payroll taxes upwards to 20 percent. Good grief.

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  • JagAugust 11, 2014 - 7:25 pm

    Maybe you have kids or grandkids and you can not move but were you offered a job to go with them in Texas?

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  • Mr. PracticalAugust 11, 2014 - 7:47 pm

    Jag, the company was McAfee. They acquired a company in Napa that I was was working for that did vulnerability scanning and certification for ecommerce Websites. They had expanded operations of our unit in existing offices in Plano. I don't think they believed the move was a good idea, but they succumbed to shareholder pressure after one quarter of less than double digit revenue growth and decided to consolidate. Since they had already ramped up operations in Texas, they didn't need that many "experienced" people to make the move. They didn't offer anyone a job in Plano, rather they told us we could "reapply" for a job there. I was born and raised here and do have family here. We had no interest in moving anyway. One thing I will say for McAfee, is they offered a fair severance, brought in an outside vendor to help with updating resumes, interview training, etc... Myself and a few of the other top producers in sales were asked to stay on an additional two months to help until the transition was made and gave us additional severance for that. The 70 salespeople they had in Plano were primarily salespeople that were already in their inbound call centers for anti-virus product.. What we did was outbound sales and a completely different animal. The eight of us that were asked to stay, out sold the 70 salespeople they had in Plano by 4 times the final month. I sold to quite a few Websites you would recognize. One of the last was Hustler! Your credit card info is safe there!!!

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  • JagAugust 11, 2014 - 8:15 pm

    sorry to hear that, I do understand being raised here (Me To) I know McAfee very well we used Symantec until Microsoft included Fore Front in our Volume Licensing saving us over ten thousand a year. hopefully you are not commuting to San Jose every day where most of your work is, I am in SF and that is far enough,

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  • Mr. PracticalAugust 11, 2014 - 8:21 pm

    Jag, prior to that job, I was a small business owner for 30 years. I now work for a non-profit that advocates for small business in Sacramento and Washington DC. I'm in the field everyday talking to small business owners about how screwed up the government is. It never gets old!

    Reply | Report abusive comment
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