Hope you don’t mind me sneaking in a late one here.
As the United States economy has slogged along toward recovery these last six years, we’ve seen no shortage of debate on different approaches toward addressing unemployment.
One particularly controversial topic has been unemployment insurance.
Administered by state governments and the Department of Labor at the federal level, unemployment insurance programs provide benefits to people who become unemployed and meet certain eligibility requirements. At the start of 2008, most states offered up to 26 weeks of protection. By the end of that year, residents of multiple states could receive over 70 weeks of unemployment benefits. Later, for a period lasting from late 2009 to spring 2012, unemployment benefits lasting for a maximum of 99 weeks were available to residents in as many as 30 states.
The school of thought that sees unemployment insurance as discouragement
There are many who believe that unemployment insurance, because it effectively pays people to not work, gives recipients a disincentive to find a new job, which would serve to increase the unemployment rate. The argument goes that limiting these benefits will provide the best motivation for the long-term unemployed to look harder for work.
Some politicians have gone so far as to call unemployment insurance a “disservice” to the unemployed because it discourages them from looking, causing them to “become part of this perpetual unemployed group in our economy.”
Of course, if this were correct and the unemployed were actively choosing to remain jobless, a logical extension of this theory would suggest that upon expiration of their unemployment benefits, these same people would become more likely to find work.
The results of the Fed study
A new study from the Federal Reserve Bank of Boston finds that extending unemployment benefits did make people stay unemployed longer, but not for the reasons just mentioned.
Recall that the unemployment rate is found by dividing the number of unemployed people who are actively seeking work by the sum of that number and the number of employed people.
Rather, the study found that extended unemployment benefits allowed the unemployed to remain actively seeking work longer.
Moreover, once the unemployment insurance does run out, the unemployed don’t go back to get all the job offers they had rejected while collecting unemployment benefits. Instead, they stop actively seeking work.
The researchers’ three main findings can be summarized as follows:
- The unemployed don’t stop looking for work very much until they approach the expiration of unemployment benefits
- The unemployed are more likely to stop looking for work in the month that their benefits expire than they are in the month before their benefits expire, and even more likely to stop looking in the months after their benefits expire
- Perhaps most importantly, the unemployed were no less likely to become employed when unemployment benefits were extended to longer terms than when they were cut
If you’re interested in digging deeper, you can find the whole study from the Boston Fed here.
Certainly, a single study isn’t an end to the story, but hopefully it offers enough of a reminder for us to avoid the very strong impulse to blame unemployment on the unemployed.
Enjoy your night 🙂