Should the Extended Unemployment Benefits be Re-extended?

Last updated on: December 28, 2013 at 8:26 pm by Jane the Actuary

Should the Extended Unemployment Benefits be Re-extended? 2013-12-28T20:26:00-06:00 Jane the Actuary

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So the Tribune is reporting today that the extended unemployment benefits are expiring, though I couldn’t find a link to their article on the topic. (For reference, here’s a piece from the Christian Science Monitor.) I suspect that you, my readers, have been following this in the news and don’t need any further details from me, but I’m going to write this one out as an exercise in reasoning this through and writing coherently.

There are two lines of argumentation: purely economic and humanitarian.

The humanitarian argument: on the one hand, the “tough love” idea that the long-term unemployed need to be forced to take a job, any job, lest they become even more unemployable through the loss not just of their specialized skills but their ability to get up in the morning and punch a timeclock, and through the hole in their resume that becomes a chasm. On the other hand: the loss of unemployment benefits causes undeniable hardship for people.

Is the “tough love” concept correct? Here’s what the CSM has to say in the above-linked article:

For people out of work longer than 26 weeks, expiration of the longer benefits may mean accepting a job they’d rather not take, continuing the job hunt without any benefits, or dropping out of the labor force and leaning on family or other means to get by.

North Carolina has offered what may be a cautionary case study, by opting out of EUC early this year. Unemployment there has fallen faster than nationally – from 9.4 percent in February to 7.4 in November. But the reason isn’t people getting jobs (the number employed went down for several months before taking an upward path) as much as people dropping out of the labor force.

This does seem to indicate that there are people who turn down jobs “they’d rather not take.” Are these middle-class white collar workers accepting or declining a more entry-level lower-paying version of the job they held before? Or is the job in question a retail or fast food minimum wage job? And what is the fate of a formerly-middle-class individual who takes a minimum wage job just to bring some bare income into the household? Do they doom themselves? Do prospective employers look favorably at the “no work is shameful” job, or is it even worse than long-term unemployment? Is this a matter of job level and economic class?

What’s more, North Carolina’s case is a bit worrisome. It doesn’t really make sense that an individual would give up looking for a job due to the expiration of unemployment benefits — that ought to be a push to, in fact, take any available job, or at least, not make a difference one way or the other, except that collecting unemployment benefits requires the recipient to be looking for a job. Does this mean that such a labor-force drop-out was, in fact, genuinely compelled to continue a job search as long as the unemployment benefits were paid out, or is it more that these “future drop-outs” weren’t really looking for work but claimed to be doing so as long as benefits were contingent on it? Are long-term unemployment benefits a meaningful carrot to get people to continue looking for work, or is it all a charade?

(For that matter, I’ve never been clear on who the “discouraged workers” are: parents who decide to stay at home with the children instead? Early retirees? Someone turning to more schooling instead? Someone working in a black-market sort of way (drugs, etc.)? Or the stereotypical slacker on his parents’ couch?)

Unfortunately, the system isn’t smart enough to differentiate between these groups, and to tell the difference between someone who needs the benefits to feed their family, someone whose family is doing OK due to the other spouse’s income, and someone for whom the benefits help the family minimize disruption (e.g., keeping them in the family home rather than moving somewhere cheaper) — but perhaps there’s a reason for a means-tested step-down, something that’s more of a hybrid between unemployment benefits and welfare. And the system can’t really tell for whom unemployment benefits prevent accepting a job, any job, and for which recipients simply can’t find any job at all.

But for the middle class, at least, part of the problem is that families are locked into certain spending levels, especially by the need, in order to be properly middle-class, to own a single-family home in a “good school district.” It’s easy to say that, for the short-term, you can shop at Aldi, cut out the restaurant meals, cancel cable, seek out more hand-me-downs for the kids, etc. But the mortgage payment and the property tax bill have to be paid, and we can talk about having emergency savings ’til we’re blue in the face, but if saving requires forgoing this marker of middle-classness and raising the kids in an apartment, it’s not going to happen.

Economically? I suppose I just don’t assign credence to the various claims that paying unemployment benefits stimulates the economy and brings about economic growth 1.5 to 2 times the value of the benefits paid out, especially when our GDP is growing so we’re not in a recession, and there’s no reason to believe that any stimulative effect as might exist will make an impact on the unemployment rate specifically when the factors producing high unemployment despite a period of economic growth don’t really tie into models of stimulus and multipliers and the like.

And ultimately this is an issue of what’s happening with jobs in this economy more generally — and the fact that many jobs are disappearing, and there seems to be a significant shift in the labor market, and extending unemployment benefits isn’t really going to have a big macroeconomic effect relative to these other issues.

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