In January 2011, I questioned whether paying able-bodied people to stay home and play Xbox for 99 weeks was a smart idea. In January 2013, I wrote about academic studies that found that indeed the American economy’s recent period of high unemployment and high long-term unemployment was closely tied to our politicians’ decision to pay people to stay home. Last night a reader sent me a link to an October 2013 paper: “Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects,” by economists from the University of Oslo, the Federal Reserve Bank of New York, and the University of Pennsylvania. The authors look at integrated labor markets that happen to be intersected by a state border. In markets, there are workers who have the same job opportunities but potentially different maximum duration for unemployment benefits.
The conclusion? “We found that unemployment benefit extensions have a large effect on total unemployment. In particular, our estimates imply that unemployment benefit extensions can account for most of the persistently high unemployment after the Great Recession.”
Not sure who these people are, or what income levels we are talking about, but I have been on unemployment (’02) and it did NOT come close to the amount of money I was making at a job.
So, when I could find a job, and get back to work, I immediately did. This included a relocation.
I was also unemployed for a 1.75 years during the financial/automotive crisis: unemployment benefits (and considerable personal debt) helped me to survive until the economy got a little better and I was offered a white-collar job in my field (which required a self-funded relocation to an undesirable location), earning a small graduate certificate in engineering in the process. I was extremely close to giving up and working the rest of my life in low-wage retail, which would have dramatically reduced the taxes that I paid during the last 3 years, and caused bankruptcy.
So, in my case, it’s been a very good investment for both the government and the banks that own it and me.
Apologies for burying the main point:
One, if not the main, purpose of unemployment insurance is to allow an individual to return to work *in his primary occupation*, rather than scrambling for whatever low-skill, low-paid work is immediately available. So some increase in the duration of unemployment indicates that the system is functioning as intended, and I am an example of this phenomenon.
I expect that student loans and other forms of educational assistance “delay students’ entry into the workforce” to an even greater degree, but people seem to think it’s better to have a child finish medical school than be forced to drop out at 14 to work at Triangle Shirtwaist to avoid starvation.
(I do agree that the examples you posted showed poor time management and lack of initiative; the question is which case is more typical. Unlike me, they tended to be married people benefiting from spousal income.)
Phil,
I believe most “white collar” level unemployed have the absolute intention to get back to work ASAP. However, the lower level wage earners who lose their jobs have very little incentive to get back to work when they are able to stay at home and receive benefits not that much less than their former jobs provided, for nearly two years!
Philip, I got my father to pay for long years of studies, when the University was only 3 years long, and it took me 6. People I know are doing the same with State subsidies, using them to earn a degree (not Xbox-ing at home). Without these ‘subsidies’ people who don’t do things well the first time have a second (in my case a 3rd and 4th) chance. People who have gotten almost every challenge in life right at the first time (as it would seem your case) might forget that we all are not that bright (yet we enjoy reading people who is).
Luis: This gives me hope. The “99ers” have all been working on advanced degrees, writing the Great American Novel, etc. That means the next 25 years will be amazingly prosperous as we reap the dividends from all of this investment.
(Separately, don’t credit me with handling life’s challenges. I’m good at things that most people are bad at, e.g., programming computers, flying helicopters and jets, writing books, taking pictures, but I’m bad at a lot of things that most people are good at!)
Interesting – Paul Krugman’s latest blog posting lists a number of unemployment studies that seem to refute this one.
http://krugman.blogs.nytimes.com/2013/10/21/maybe-economics-is-a-science-but-many-economists-are-not-scientists/?_r=0
“Consider the politically charged question of whether extending unemployment benefits increases unemployment rates by reducing workers’ incentives to return to work. Nearly a dozen economic studies have analyzed this question by comparing unemployment rates in states that have extended unemployment benefits with those in states that do not. These studies approximate medical experiments in which some groups receive a treatment — in this case, extended unemployment benefits — while “control” groups don’t.
These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates.”
This:
“These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates.”
http://krugman.blogs.nytimes.com/2013/10/21/maybe-economics-is-a-science-but-many-economists-are-not-scientists/
And this:
“He reports evidence that extended benefits have only a small effect on the time people spend searching for work. But suppose the result went the other way; would that say that UI was hurting employment? Not necessarily, and I’d say not at all: right now the economy is constrained not by a lack of willing workers but by a lack of demand, so that making workers more choosy about accepting jobs would, to a first approximation, have no effect at all on overall employment.”
http://krugman.blogs.nytimes.com/2013/10/22/a-dark-age-of-empirical-work/
Folks: Thanks for the Krugman links. I think what is most interesting about the Krugman piece is that he doesn’t reference the paper that I cited in my original post. He gives New York Times readers the impression that all studies of unemployment benefits have concluded that paying people not to work has little to no effect on anyone’s decision regarding whether or not to work. Is it possible that a full-time economist with a few research assistants missed the paper that I was emailed? Typing the title of the paper into Google results in roughly 6250 references to the paper. Krugman also didn’t mention the September 2012 paper that I referenced in my January 2013 posting.
So maybe a better summary of Krugman’s article is that he found at least some papers that concluded there was a link between sitting at home playing Xbox and being paid to sit at home playing Xbox but then chose not to cite any of those papers.
I looked a little more carefully at the selective citation of Krugman. Even the article that he quotes (by Chetty) is very selective in its citations. Chetty sings the praises of expanded Medicaid in Oregon but doesn’t mention the cost. He doesn’t cite the full results of a $20 million study conducted by MIT’s Amy Finkelstein that found that expanding Medicaid increased per-person spending by 25 percent (see my December 14, 2012 posting). Chetty is, I think, referring to this study and summarizes its findings as follows: “The study found that getting insurance coverage increased the use of health care, reduced financial strain and improved well-being.” All true, of course, but not the fully story from Finkelstein and her team.