President Obama is pushing to extend unemployment benefits again, and argued earlier this month that it “creates jobs.”
“Voting for extending unemployment insurance helps people and creates jobs,” Obama said. “Voting against it doesn’t.”
It’s about time we took on this silly notion that paying people not to work causes more people to work.
Peter Schiff had some fun on his radio show the other day with this idea. He asked people to call in with their stories of being on unemployment when they were younger. Person after person called in to say that they had enjoyed their time on unemployment, and looked for ways to keep it going. One person said he crashed at his brother’s place and went skiing for months. If someone had offered him a job on the slopes he would have turned it down. Like all the other callers, he said the thing that motivated him to actually get out and work was when the checks stopped coming in the mail.
Now. I am not arguing that unemployment is a wonderful experience. For many, and almost certainly most, it is a rough time — especially for people who have gotten older and have greater expenses and responsibilities. It can be very rough indeed, even devastating. For such people, unemployment insurance can help cushion the blow. I’m not arguing against having it at all, although I can imagine better ways to address the issue.
My point is: I am highly skeptical of people who say that unemployment insurance “creates” jobs. No: businesses create jobs. When people need to work, it’s easier to get people to work. It’s just common sense, and Schiff’s callers illustrate the truth of that common sense: extended unemployment benefits means extended unemployment.
I hear some of you sniffing: “Common sense? Callers to a talk show? That’s anecdotal evidence! Where are the studies that prove what you’re saying?!”
We exploit a policy discontinuity at U.S. state borders to identify the effects of unemployment insurance policies on unemployment. Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility. In contrast to the existing recent literature that mainly focused on estimating the effects of benefit duration on job search and acceptance strategies of the unemployed — the micro effect — we focus on measuring the general equilibrium macro effect that operates primarily through the response of job creation to unemployment benefit extensions. We find that it is the latter effect that is very important quantitatively.
This is one of many studies cited by lefty hacks PolitiFact when they tried to attack Rand Paul on this point and found they couldn’t. They quoted an economist from the left-leaning Brookings Institution who confirmed the obvious:
Gary Burtless, an economist at the Brookings Institution, said Paul is on “safe ground” with his claim.
“It is fair to say that there have been ‘many studies’ of the impact of longer unemployment insurance durations on unemployment, re-employment, and labor force participation, and it is fair to say that a sizeable majority of studies shows an impact that links longer potential benefit durations with longer spells of unemployment,” Burtless said.
Naturally, PolitiFact tried to spin this a little, as you would expect. (Their big argument seems to be the old Keynesian “give people money and they’ll spend it which helps the ecnomony” argument. Why not just make every American a ward of the state, then? The economy will BOOM!) But they couldn’t avoid the evidence that extended unemployment benefits generally lead to extended unemployment.
Bookmark this for when people repeat that canard that extending unemployment benefits creates jobs. It’s nonsense. Common sense, your experience, and even studies say so!