Conservatives' Bogus New 'Proof' that Jobless Benefits Hurt the Economy

by Danny Vinik | April 10, 2014

The Senate on Tuesday passed a bill that would extend emergency unemployment benefits. It’s an effort to renew a program that was in place until the end of last year—providing much-needed relief to more than a million Americans.

But for that to happen, the House must also approve the bill. And that seems unlikely.

A group of conservative thinkers and writers have been telling Republicans that extending unemployment benefits would actually hurt the economy by discouraging the unemployed from finding work. Now some of these wonks say the most-up-to-date data, from the three months since the old extension expired, proves them right.

A case in point is a new article by Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute and former chief economist at the Labor Department. “The House of Representatives has the opportunity to stall the economic recovery by following the Senate and passing an extension of unemployment insurance benefits,” she wrote. “Or, the House could help the economy by just letting the bill die.”

To make her point, Furchtgott-Roth points to the labor-force participation rate—that is, the percentage of Americans who are working or actively trying to find work. The rate actually ticked up in March and January—a rare increase in the aftermath of the Great Recession. Furchtgott-Roth attributes it, at least partially, to the expiration of unemployment benefits.

But this tells us almost nothing. In order to collect benefits, the long-term unemployed are required to look for work. In other words, beneficiaries of UI are by definition already in the labor market. The 0.4 percentage point increase in the participation rate must have other causes—for example, an improving economy that is drawing discouraged workers back into the labor market.

Another data point that Furchtgott-Roth cites is the number of long-term unemployed—people who have been out of work for more than six months. It has dropped by 139,000 in the first quarter of 2014 and that, according to Furchtgott-Roth, is proof that benefits were discouraging people from working. (Furchtgott-Roth wrongly says it is 110,000—although she gets it right on Twitter.) But this reduction is nothing new. During the recovery, the number of long-term unemployed has seen a slow, consistent drop:

Number of Long-Term Unemployed
Source: Bureau of Labor Statistics

That trend has continued over the past three months but it hasn’t accelerated. We also don’t know why the ranks of the long-term unemployed are decreasing. They could be finding jobs. They could be dropping out of the labor market. If conservatives are correct that unemployment benefits discourage work, the number of long-term unemployed should fall at a faster pace. That hasn’t happened yet (and the best academic evidence says it won’t happen), but it is still too early to draw any firm conclusions. The number of long-term unemployed could plummet in the upcoming months—and that would be great news.

Finally, Furchtgott-Roth cites the economy’s creation of 192,000 jobs in March as evidence of the conservative position. It’s a bit strange to cite only the March jobs number since that jobs data is often very noisy, particularly before the Bureau of Labor Statistics has revised the number. A better way to look at the jobs report is using a three-month moving average. When looked at that way, the March jobs numbers (and those in January and February) show no extraordinary growth:

Three month moving average
Source: Bureau of Labor Statistics

As Furchtgott-Roth notes, a huge number of factors affect economic growth and job creation. It’s hard, if not impossible, to disaggregate them. The weather undoubtedly impacted job growth in January and February. If the conservative theory on unemployment insurance is right, winter storms could have masked any benefits from the expiration of UI. Alternatively, maybe job growth would have been stronger if Congress had renewed the benefits. It’s far too early—and the data is far too noisy—to draw any firm conclusions.

Source URL: http://www.newrepublic.com//article/117328/how-end-unemployment-insurance-has-affected-labor-market