Will the end of extended and enhanced unemployment benefits push people back to work?
The answer apparently depends on what newspaper you read.
The Wall Street Journal offers a definitive "Yes."
Under the print headline "Benefits’ End Spurs Return to Workforce," the paper’s news columns report on an analysis by economists at Jefferies LLC showing that states that opted to cut off the longer, more generous benefits saw their unemployment rolls shrink faster than other states that left the longer, more generous benefits in place.
The Journal article is illustrated with a photograph of a St. Louis hotel that saw 40 job seekers after Missouri’s Republican governor, Mike Parson, cut-off benefits.
The New York Times answers the same question with a "No."
Under the print headline, "Unemployed Still Choosy Despite Loss of Benefits," the paper’s news columns report from Missouri that "Work-force development officials said they had seen virtually no uptick in applicants since the governor’s announcement, which ended a $300 weekly supplement to other benefits."
The Times also passes along that "the online job site Indeed found that in states that have abandoned the federal benefits, clicks on job postings were below the national average."
It’s a good reminder of the importance of reading more than one newspaper.
But it also points to the staleness of the debate over expanded or enhanced unemployment benefits and their effect on labor market participation.
It’s a debate that recurs predictably toward the end of any economic downturn, not only in the press but in real life.
The owner of a Taco stand on Martha’s Vineyard recently offered by way of explaining why it’d be at least a half-hour wait before my order was ready: "You can’t find any help because everyone’s getting paid not to work."
By now, the economics literature — if not The New York Times news coverage—is pretty clear. "One of the classic empirical results in public finance is that social insurance programs such as unemployment insurance reduce labor supply," is how the economist Raj Chetty described it in a 2008 article in the Journal of Political Economy.
A 2014 analysis published by the Federal Reserve Bank of St. Louis explained "Longer benefits may reduce unemployed workers’ job search efforts and raise their reservation wage, decreasing their likelihood of becoming reemployed."
A 2013 working paper issued by the Federal Reserve Bank of San Francisco summarized, "Standard search models of unemployment imply that UI payments are likely to reduce job-finding and prolong unemployment spells for eligible individuals, and a voluminous empirical literature exists that attempts to quantify the size of such effects…. The findings from this research generally reveal the expected disincentive effects of UI availability on unemployment exits."
It’s a standard case of perverse incentives and unintended consequences — pay people not to work and, lo and behold, they don’t work.
You don’t have to be some free-market economist or neoconservative columnist to recognize this. President Barack Obama said in 2011: "Unemployment insurance, the way it’s designed — it was designed back at a time when you’d have layoffs and then people would hire you back when the business cycle went back…. We’ve got to rethink how we do unemployment insurance…. We’ve got to be more creative in terms of not doing things the way we’ve always done them."
Instead of fighting the same tired fight at the federal and state levels about whether to increase unemployment benefits or extend their duration, policymakers would be better off taking Obama’s advice and trying some experimental alternatives.
What if, instead of people losing all their remaining unemployment benefits when they get a job, they got to keep all or some of them, on top of the new wages, as a kind of "back to work bonus"?
What if people could save money to self-insure against the risk of future unemployment in a tax-exempt account that, if they stay employed and don’t need to tap it, could eventually be rolled over into their retirement savings?
What if unemployed workers could formally—not on the sly—use unemployment benefits as start-up capital for a new business?
What if unemployment benefits were somehow front-loaded in a lump sum, so that if an employee managed to find or create a new job in one month rather than 18 months, the worker gains rather than loses?
What if a single system covered both traditional wage-earners and the "gig economy" self-employed?
Some of these concepts may have their own unintended consequences or drawbacks. So, though, does the current setup. The time to reform the system is before some future downturn forces another round of extended or increased unemployment benefits and the disincentives that accompany them.
Ira Stoll is editor of FutureOfCapitalism.com and author of "JFK, Conservative." Read Ira Stoll's Reports — More Here.
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