Myth of the Day: Benefits Make People Lazy

by Alexander C. Hart | July 1, 2010

Sharron Angle, the Republican trying to unseat Senate Majority Leader Harry Reid, made herself an easy political target when she told an interviewer that cutting unemployment benefits was the right thing to do:

RALSTON: How would you have voted on that bill to extend unemployment benefits?
ANGLE: I would have voted no, because the truth about it is that they keep extending these unemployment benefits to the point where people are afraid to go out and get a job because the job doesn't pay as much as the unemployment benefit does. And what we really need to do is put people back to work. 

To be fair, though, Angle isn’t the first conservative to make this suggestion. And her argument has a certain intuitive appeal: Wouldn’t generous unemployment benefits discourage people from finding work?

In fact, a 1990 study of unemployment benefits by Lawrence Katz and David Bruce Meyer suggested as much: They found a significant link between how long people could receive payments and how long people stayed unemployed. (For each five to six weeks of extra benefits, people would stay unemployed one additional week.) Katz and Meyer also noticed that people stopped being unemployed at the same time as their benefits ran out—proof, it would seem, the more generous benefits encourage people to stay jobless.

But subsequent research showed otherwise. A 2007 study from David Card, Raj Chetty, and Andrea Weber took a closer look at what happens to people when their unemployment benefits run out. They don’t magically find jobs, it turns out. Rather, they simply stop submitting the information that would cause the government to count them as unemployed.

Remember, to be officially “unemployed,” you have to be seeking work. And unemployment benefits are only available to people who declare they are hunting for a job. Once the benefits run out, people no longer bother to make that declaration. (Why go to the trouble, if you can’t get the benefits anyway?) So the statistics stop counting them as jobless even though, as the researchers found, only a tiny fraction of workers return to the workforce right when benefits run out.

What’s more, Katz himself has said his findings, based on 1970s data, aren’t relevant to the current situation, when jobs are simply less plentiful. Speaking with Politifact in 2009, he said, “I strongly favor extensions of UI benefits when the labor market is weak and the ratio of job seekers to job openings is very high.” According to the Economic Policy Institute, there are about five job-seekers for every job opening right now. In December 2007, when the recession officially began, there were only two job-seekers per opening.

But, hey, we’re about to get something like a real-world test of Angle’s theory. Thanks to the Republicans and Democrat Ben Nelson, hundreds of thousands of people will lose their unemployment benefits in the next few weeks. If she’s right, a bunch of them will magically find jobs just as the benefits run out. Bets, anybody?

Alex Hart is a reporter-researcher at The New Republic.

Correction: An earlier version of this article improperly identified Bruce Meyer as David Meyer. My apologies for this error -- AH

Source URL: http://www.newrepublic.com//blog/jonathan-cohn/76001/myth-the-day-benefits-make-people-lazy