Posted by Michael Kennedy on 28th January 2015 (All posts by Michael Kennedy)
The Pelosi Congress extended unemployment benefits in 2009 to a maximum of 53 weeks. This has been renewed until the new Republican Congress after 2010, unable to get Obama to negotiate, allowed the extra benefits to lapse.
Federal unemployment benefits that continue for 26 weeks after a person uses up the 26 weeks of state unemployment benefits ended Saturday, so now some 1.3 million people won’t be getting their $1,166 (on average) monthly check. By June, another 1.9 million will be cut off.
Many in the federal government are talking about the need to extend benefits. President Obama labelled it an “urgent economic priority” and called a couple of senators to pressure them to bring the matter up when the Senate reconvenes next week, and is urging Congress to extend the benefits for another three months. Senate Majority Leader Harry Reid has promised a vote no later than January 7 for the three month extension. Gene Sperling, the head of Obama’s National Economic Council, lamented the end of the federal aid…
Disaster was predicted.
Amazingly, the disaster did not happen. In fact, job growth went up.
Just looking at the economy’s overall size, you wouldn’t think that the last year was much different from any of the others since the recession. The U.S. economy grew at about the same rate in 2014 as it did in the previous four years — less than 2.4 percent, according to the Federal Reserve’s most recent projection. Yet last year was different. People started going back to work. The percentage of Americans working, more or less stuck in a ditch since 2009, increased from 58.6 percent in December 2013 to 59.2 percent last month. Employers added an average of 246,000 positions a month, about 3 million jobs overall.
What happened ?
Economists will debate what happened, but one of the more controversial theories is that Congress’s decision not to extend federal unemployment benefits at the end of 2013 encouraged those out of work to settle for more poorly paid jobs, giving firms a better reason to expand and hire new workers. That’s the conclusion of a new working paper from the National Bureau of Economic Research. The authors, Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania and Stockholm University’s Kurt Mitman concluded that the reduction in benefits created 1.8 million jobs last year — more than half of the total.
That article is from the Washington Post so, of course, they provide rebuttals.
This is an interesting result which contradicts much prior research indicating that shortening benefit duration had little impact on employment growth (e.g. here, here, here, and here). It is worth testing this result with an alternative data series. HMM use the Current Population Survey for the state level data and the Local Area Unemployment Statistics (LAUS) for the county level data. These series are both problematic for this sort of analysis.
Oh yes, other interpretations can be found. The leader of this new (1999) Democrat think tank is a leftist economist with a reliable view for the Washington Post to cite. His credits include: “He writes a weekly column for the Guardian Unlimited (UK), the Huffington Post, TruthOut, and his blog, Beat the Press, features commentary on economic reporting. His analyses have appeared in many major publications, including the Atlantic Monthly, the Washington Post, the London Financial Times, and the New York Daily News. He received his Ph.D in economics from the University of Michigan.”
The Wall Street Journal also weighs in on the report.
Assuming that the pre-2014 trends would have continued among the two groups, the authors find that “the cut in unemployment benefit duration led to a 2% increase in aggregate employment, accounting for nearly all of the remarkable employment growth in the U.S. in 2014.” They then confirm these results with a second experiment that compares adjacent counties in different states whose economies are otherwise equal except for their unemployment benefits.
Notably, job growth improved most in states and counties that offered the most generous benefits before Congress took away the punch bowl. This suggests that the extra jobless benefits reduced the incentives for businesses to create jobs and for jobless workers to fill the vacancies.
Of course, Obama is now bragging about the new job growth.
Mr. Obama is now taking credit for 2014’s job gains that his policies inhibited, much as he is for the boom in oil and gas drilling that his Administration resisted. Thus comes the opportunity for a late-term “Seinfeld” economic epiphany. Imagine the possibilities if the President realized that everything he thought about economics is wrong.