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August 5, 2014

Did Ending Long-Term Unemployment Benefits Grow the Workforce?

 

The Bureau of Labor Statistics (BLS) reported Friday that the unemployment rate increased slightly, from 6.1 percent to 6.2 percent. The media and numerous pundits put a happy spin on the increase, claiming it was largely due to more Americans entering, or reentering, the job market.
 
But why were they looking for work again? The most-cited explanation was that unemployed workers are encouraged by the slowly improving economy.
 
That may be part of the explanation, but another, and perhaps more important, factor has to be the end of long-term unemployment benefits.
 
When the recession ended in July 2009, there were still millions of Americans unemployed. President Obama’s pro-regulatory, anti-growth economic policies stifled the strong economic bounce that occurs after a recession, and so unemployment remained higher than usual for longer than usual.
 
The solution offered by Obama and the Democrats was to extend unemployment benefits long past the normal 26 weeks for most states, eventually reaching 99 weeks, and later reducing it to 73 weeks.
 
Had House Republicans not held firm, Democrats would have extended the benefits yet again in January—and still would.
 
Republican reluctance had Obama and the mainstream media warning of catastrophic economic consequences, much as they did when the budget sequester began in March of 2013.
 
What has happened instead is that many unemployed Americans are returning to the labor market looking for a job. In September of 2009 the employment-population ratio went below 59 percent and stayed there until last June.

Bureau of Labor Statistics
Labor Force Statistics from the Current Population SurveyThe employment-population ratio is different than the BLS’s labor force participation rate. The latter tracks the percentage of working-age Americans who are working. The employment-population ratio, by contrast, compares the number of employed people to the total working-age population, whether the person is looking for a job or not. A rising number means more people are coming off the job sidelines.
 
Why the recent increase? It’s the same old saying that you get more of what government subsidizes and less of what it taxes. When the government subsidizes unemployment, you will get more of it. Once the subsidies stop, people will go back to work.
 
That observation doesn’t deny that many people had—and still have—a hard time finding a job in Obama’s slow-growth economy. Nor does it mean there shouldn’t be a temporary safety net for the unemployed.
 
It simply reaffirms that economic incentives matter. Ending the longest-ever extension of unemployment benefits was a good policy decision.


 

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