For much of the year, congressional Democrats have tried to convince their Republican counterparts to pass an extension of long-term unemployment benefits, arguing that failure to do only exacerbates the pain of the long-term unemployed. A 2012 paper dug up Tuesday by the conservative American Enterprise Institute's Andrew C. Quinn makes that case more convincingly than ever.
The paper, by Stanford sociology professor Cristobal Young, estimated the effects unemployment has on happiness, in some cases when the newly unemployed received UI benefits and others when they did not. The results are clear: Unemployment benefits make unemployment easier.
This graph shows that unemployment benefits alleviate nearly a quarter of the loss in well-being that accompanies loss of a job.
But that's not how Quinn characterized it.
“Unemployment benefits merely take a little bit of the edge off the happiness downdraft from being laid off,” he writes. “To be sure, the financial help cuts back on some stress at the margins. But just as clearly, involuntary idleness brings a massive psychological cost that mere money can hardly touch.”
Quinn is arguing that a job’s effect on happiness is more than monetary: If a person making $50,000 a year lost his job, but still received $50,000 per year anyways, his happiness would decline even though his earnings stayed the same. But Quinn overstates his case here. Unemployment benefits don’t replace a person’s wages dollar-for-dollar. They replace about half of them, although the amount can vary widely by state. In other words, if a job’s effect on happiness were purely monetary, unemployment benefits would only restore a person’s happiness to half its previous level.1
But Quinn’s point is well taken. Even if unemployment benefits restored a person’s full wages, they would not restore their happiness. As Quinn notes, this is further evidence against the Republican position that unemployment benefits discourage work. “[The] results suggest that laid-off Americans who are cashing unemployment checks are still miserable and would vastly prefer to be working,” he writes. Add this to the long list of evidence that unemployment insurance largely doesn’t cause workers to forego jobs and mooch off the government.
Thus, the debate over extending UI should be about whether it's worth the money, not whether it motivates people to look for work or stay home. A full year extension would have cost $25 billion. The Senate deal on UI, which included a partial spending offset, cost just $9.7 billion. (The federal government spends around $3.5 trillion every year.) That seems like a small price to pay for helping out a million-plus of the hardest hit Americans.
An even better solution to this long-term unemployment crisis would be to find those Americans jobs. “It could not be clearer,” Quinn writes, “that improving Americans’ lives ultimately comes down to fostering a functioning, growing economy, not tinkering with the levers of social policy.” Fair enough. But Republicans haven't offered a plan to foster “a functioning, growing economy.”
A functioning economy would require an adequate level of aggregate demand—consumer demand for goods and services—to sustain full employment. The Great Recession left a huge hole in aggregate demand, creating a nasty spiral of consumers cutting their spending, employers responding by firing workers, who then cut back their own spending, leading to more firings.
The federal government’s proper response would have been to stop this feedback loop by filling the hole in demand through fiscal and monetary stimulus. To a limited extent, the government did that. Congress passed the stimulus and the Federal Reserve cut interest rates to zero to spur stronger growth. The Fed even used unconventional monetary policy such as purchasing Treasury bonds and mortgage-backed securities to further boost the recovery. But none of those policies were able to fill the gap in aggregate demand—thus, the slow recovery.
If Republicans want to contend that UI is a second-best policy behind boosting job growth, then they have to propose policies that create jobs. That requires supporting fiscal or monetary stimulus. But the party has been vocal opponents of both, and that's why economy is where it is today.
The survey data in this study also does not distinguish based on lengths of unemployment. It’s possible that unemployment insurance has a greater positive effect on a person’s well-being the longer they are unemployed, since money becomes more valuable as they deplete their savings. Young’s paper may actually understate the value of UI for the long-term unemployed.
Danny Vinik is a staff writer at The New Republic.