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Unemployment Benefits Extensions Have Small Impact on Jobless Rate



“Any negative effects of the recent unemployment insurance extensions on job search are clearly quite small, too small to outweigh the benefits of transfers to people who have been out of work for over a year in conditions where job-finding prospects are bleak,” according to the report.

Economists generally agree that extended jobless benefits increase the unemployment rate. But they disagree on how big the effect is and how damaging that is to the economy.

Generous unemployment insurance can increase joblessness if Americans who are out of work don’t search as hard as they otherwise would have for new jobs. They can also give recipients a reason to hold out for better-paying jobs. Those impacts can be a negative for the economy because it means instead of reentering the job market, sidelined workers are relying on the government for assistance and staying unemployed for longer.

The extended benefits can also push the unemployment rate up for less ominous reasons. Because jobless Americans have to be searching for work to receive benefits, the checks could give them an incentive to continuing hunting for a job when they otherwise would have given up and dropped out of the labor force. That bumps up measured unemployment, which counts only those who are jobless but looking for work, but it doesn’t increase the actual number of people out of work in the U.S.

Mr. Rothstein’s research found that at least half of the increase in the unemployment rate from extended benefits came from workers staying attached to the labor force as opposed to Americans not searching as hard for jobs or being pickier about the ones they would accept.

There’s a chance extended benefits actually increase the number of Americans who find new jobs, according to the study. By one calculation, unemployment insurance extensions increased the share of workers who became reemployed by about 1.3 percentage points in January 2011 by reducing the fraction who excited the labor force.

Still “it would be premature to conclude that the [Emergency Unemployment Compensation] and [Extended Benefits] programs have had net positive effects on the reemployment of displaced workers,” according to the study.

President Barack Obama’s new jobs plan includes another unemployment benefits extension, but it could be difficult to get Republicans on board with that component. Many believe the benefits provide a disincentive to hunt for work and aren’t inclined to continue extending them. Republicans have sounded more optimistic about a job training plan that would allow workers to continue to receive their benefits while temporarily working with a company.

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