Arguing UI Later…

December 12th, 2011 at 6:11 pm

…on the Larry Kudlow show, towards the end of the hour.  Riffing off of this from last night.

I’m sure I’ll hear a lot about how Unemployment Insurance (UI) benefits amount to a paid vacation for a bunch of lazybones who would find a job immediately if we shut off the program.

But I don’t buy it for a second.  This economy is demand constrained and there simply aren’t enough jobs to go around.  This is one area where facts must bust their way into the fact-free-zone.

–According to the BLS Jobs Opening Survey, there were 3.4 million job openings in September (most recent data); that month there were 6.9 million people receiving UI and 14 million unemployed (see figure).  Go after UI and all we’re talking about here is a mean-spirited, economically destructive game of musical chairs.

Sources: job openings, BLS JOLTS; on UI, Dept of Labor UI Accounts; Unemployed, BLS

–Remember, the average weekly benefit is around $300 bucks.  It’s not nothing but it’s below the 10th percentile of weekly earnings for full-time workers (see table 5 here).  And we’re not just talking about poor people—just under 70% of all UI recipients have household incomes that put them in the middle three fifths of the income scale–between the 20th and 80th income percentile.

–A particularly authoritative paper by economist Jesse Rothstein looks at this question particularly carefully, tapping the variation between the states in all the different flavors of the UI programs currently in place (i.e., because similar types of people face different UI program parameters across states, we’ve got pseudo-experimental variation).  Rothstein finds that you can legitimately assign only about 0.3 of a percentage point (30 basis points) of the 4+ point increase in the unemployment rate to UI.

–Moreover, and this is particularly germane in the current job market, with so many folks giving up the job search based on the unfavorable numbers shown in the figure above, Rothstein estimates that two of those three-tenths are due to the increase in the unemployment rate that results from people staying in the job market and keeping up the search—as is required in the program—instead of dropping out.  That is, the labor force participation rate—already depressed—would be slightly more so absent people on UI looking for work.

–Finally, UI has a hefty multiplier effect, generating about $1.60 in growth for every dollar spent on the program.  That’s because, unlike a lot of allegedly stimulative tax cuts, it’s well targeted.  Jobless folks kinda need the money.

So, while I will assiduously avoid yelling and fisticuffs, neither will I go gentle into that good night on this one.

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5 comments in reply to "Arguing UI Later…"

  1. Nylund says:

    I read a working paper recently (I forget whose) and the gist was that extending benefits didn’t really affect whether or not someone found work, but rather whether or not they stayed in the labor force.

    For people who had been unemployed for a long-time, extending benefits just meant they were in the labor force and jobless rather than being out of the labor force and jobless. Either way, they were jobless. It had no effect on whether or not people worked, but it did affect the official unemployment rate purely from the denominator point of view (whether or not they left the labor force).

    You’re either paying people to not work, or not paying them to not work. It doesn’t prevent them from working – they’re not working in either scenario. And, in that sense, it really just becomes charity. Are you giving money to people without a job or not? It doesn’t prevent them from working, but it may prevent them from starving (or becoming homeless or whatever). But not paying them doesn’t seem to push them to go out and get a job. The fact seems to be that regardless of whether or not they want to work, they can’t get work.

    There is, of course, the aspect of fiscal benefit, multipliers, and stimulus, etc. That’s outside of the scope of my comment though. Point being, extending UI didn’t seem to create any disincentives towards getting a job.

  2. Tom in MN says:

    Your last point should be enough alone without appealing to what might be someone’s nonexistent compassion.

    I read somewhere (I hope it was not here) that one of the original motivations for UI was that it is counter-cyclical. That alone should be enough to recommend it, as it’s certainly better than dropping money from helicopters. This is why it’s also one of the things the EU needs to centralize, as it will automatically transfer Euros in the correct direction and help avoid problems like they currently have. And it’s automatic, it does not take Congress to act and thus automatically helps to stabilize the economy.

  3. Dan says:

    Anyone know any explanations for why 3.4 million job openings exist in an economy like this? I’m sure part of the total must be a skills shortage, but that can’t explain all of it, right?

    • urban legend says:

      There are always openings at any given time because people leave jobs and other changes create an opening. But when there are five times as many job seekers as job openings, it is obvious that skills mismatches are at most a minor part of the problem. What, there was little skills mismatch in 2007 when unemployment was 4.5%, but it suddenly happened in a year or two when unemployment doubled? That makes no sense at all. “Skills mismatch” is a bogus distraction used to take our attention off the real problem, which is clearly a shortfall in aggregate demand caused primarily by collapse of the housing bubble.

  4. urban legend says:

    Simple and quick response: “What, people who worked their butts off for 40 years until 2008 suddenly got lazy and wanted to take a vacation at your expense? How stupid do you think people are to buy that silliness?”