What to do with the unemployed?

The debate on the value of unemployment benefits continues

Free exchange

FOR some time now, a debate has simmered over the extent to which unemployment benefits have encouraged workers who could find jobs to stay out of work, thereby unnecessarily exacerbating America's labour market problems. Most studies of the question estimate that benefits probably aren't responsible for most of the rise in the unemployment rate, and a recent bit of research from the San Francisco Fed pegged the increase in the unemployment rate attributable to benefits at about 0.4 percentage points. Still, Republicans (with an assist from Democratic Senator Ben Nelson) have seized on the question and on deficit politics as an excuse to end additional extensions to unemployment benefits. Several million unemployed Americans have or will soon lose their benefits as a result.

Scott Winship (who Matt Yglesias describes as someone who "likes to come up with empirical data that debunks liberal views") recently sought to add to the analysis of the value of unemployment benefits by constructing indexes of job openings comparable to indexes of unemployment, in order to construct usable ratios of the two. The idea is that if the ratio of unemployed workers to job openings is high it's difficult for workers to simply go out and find employment, and benefits probably aren't having much of a discouraging effect. Here's what he found:

And he wrote:


Which is appropriate. At the same time, it's important to remember that the best thing one can do for the unemployed is to get them employed. In a piece today providing an economic argument for extended unemployment benefits, Larry Summers quotes President Obama as saying:

Lasting unemployment takes a toll on families, takes a toll on marriages, takes a toll on children. It saps the vitality of communities, especially in places that have seen factories and other anchoring businesses shut their doors. And being unable to find work – being able to provide for your family – that doesn't just affect your economic security, that affects your heart and your soul. It beats you up. It's hard.

And he's right. As Brad DeLong noted in his latest By invitation piece:


In their recent contribution to the Brookings Papers on Economic Activity, Michael Elsby, Bart Hobijn, and Ayşegül Şahin explain that the longer workers spend in unemployment, the slower is their subsequent rate of exit from unemployment. Mr Summers' answer to this is that unemployment benefits are stimulative:



That's a fair point, but the 100,000 jobs created by those payments are clearly insufficient to employ the 2.5m unemployed affected by the lapse in benefits.


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