Does Unemployment Insurance Explain (and Cause) High Unemployment?
Casey Mulligan would very much like you to believe it does.
“cutting unemployment insurance would increase employment, as it would end payments for people who fail to find work and would reduce the cushion provided after layoffs.”
Here’s one pretty well-done data point (several, actually) suggesting that he’s wrong:
In theory, greater employment protection should dampen the effects of output movements on employment and therefore reduce the Okun coefficient. In Figure 10 (right panel), we test this idea by plotting the coefficient against the OECD’s overall EPL index (averaged over 1985-2008, the period for which it is available). The relationship has the wrong sign, and it is statistically insignificant.
 For New Zealand, the EPL index is available over 1990-2008. We also find no relationship between the Okun coefficient and the various components of the EPL index.
Cross-posted at Asymptosis.
Have you ever been unemployed? I was back in 2008, and the looming expiration of my unemployment insurance absolutely acted as a catalyst to push me harder to find a job? So I do think that going back to a more normal period of time for unemployment benefits would result in higher employment
not at all sure what you mean here. but lets say that you are one of those lazy individuals who will run out your unemployment benefits before getting off the couch, and then THAT YOU CAN FIND THE JOB YOU WANT RIGHT AWAY.
i am not sure how many of the rest of us are that fortunate.
but i would suggest that even if there was a correlation between employment benefits and length of unemployment that would be a feature and not a bug.
the purpose of unemployment benefits, besides saving deserving workers from starvation, is to give workers a margin during which they can find employment that matches their skills instead of settling for the first hamburger flipping job they can find. this would tend to improve the efficiency of the economy not worsen it.
i was unemployed back in 1980 along with about 15% of the rest of the “would like to work” population and i have to say i did not find the humor in economists going around saying that inflation was caused by people like me waiting until some poor employer was forced to pay me more than i was worth before i would be “willing” to accept a job.
i think you fail to recognize that the american and world workforce suffers these attacks of prolonged laziness all at the same time as the banks stop lending and employers top hiring. fascinating coincidence?
but it always fails to make an impression on the economists or the idiots who read their books third hand.
Depends, I guess – does showing up at Casey Mulligan’s house with pitchforks and torches after his pet policy is implemented count as “employment”? 😉
It is normal for us to try to correlate personal experience and how we think the world works for everyong else. But then we find many complications as you think it through…it doesn’t make your idea wrong out of hand unless you think your idea applies to everyone in equal measure, and is the key idea driving behavior.
Try these links. Dean Baker offers some explanation.
Also the discussion at Economist View adds other contributing factors to the mix, and demonstrates how economists can also leap to conclusions more simple than the data warrants.
If you are laid off and collecting unemployment, are you going to look as hard for a job when you have say 50 weeks of benefits left versus if you only had 5 weeks of benefits left?
Then make a list of what effects others behavior, and include the employer motivations as well. Also what sector of the economy you are talking about.
The ending of unemployment benefits means that you are more likely to take a job at a lower wage than you think you deserve and/or take a job that you are not as interested in, or over qualified for — flipping burgers instead of brain surgery in the extreme.
We are all better off when we find the right job, not just any job and finding the right job is one of the benefits of an unemployment program.
but you will note that even though i said the same thing, Bob took no notice of it.
this is why i get grouchy. people have their little ideas, and nothing can get them to think even a tiny bit further.
Yes, coberly. In fact, Bob’s unemployment payments may have allowed him to turn down jobs that were not exactly what he was look for, too…the very thing we are talking about. It allowed him time to find a better job.
Nobody said that you can’t continue to look for that “better job” while you are flipping burgers. But how long is too long to give someone benefit payments for?
take a look at the number of people unemployed and how long it takes them “on average” to find a new job.
then stop begging the question. you cannot prove that unemployment benefits cause longer unemployment by assuming that it does.
as i tried to point out above… it is very strange, don’t you think, that the period of unemployment grows longer when the banks aren’t lending and the employers aren’t hiring, even though the unemployment benefit has not changed. people just get lazy, i guess, all at the same time, forcing the poor congress to extend unemployment benefits, thus leading to a vicious circle where workers never see any reason to go back to work.
until the factory opens again.
and, even the burger flipping jobs are hard to get during a recession. seems all those lazy unemployed factory workers have the same idea you do.
A sort of mathematical answer to Bob’s eternal question
Bob insists that with long unemployment insurance eligibility, folks just naturally stay unemployed longer because, because, because, well, they are lazy.
and he may be right. B.F.Skinner showed fairly conclusively that with “fixed interval reinforcemetn” pigeons and rats and monkeys and students and flatworms all tended to wait until the last minute before “responding.”
whether unemployment meets the “fixed interval” schedule of reinforcement, i will leave to the reader to ponder. but let us assume that Bob is right.
now, ignoring for the moment, along with Bob, who will ignore it forever, that the number of people being laid off at some given time may be ten times as great as the number of new jobs opening, let us enter in the middle of things:
suppose that there are 100 people out of work and that they either have no unemployment insurance at all, or that they are limited to one week of benefits. and now suppose that one job opens up in their community. we may be fairly sure that 100 people will show up to apply for that job, and one of them will be hired. what happens next week to the 99 who didn’t get that job and are now out of unemployment insurance, we will leave to the reader’s imagination, even if he doesn’t have one.
but let us suppose that in the same situation with 100 people out of work and one job opening per week, this time the people have ten weeks of unemployment insurance.
if Bob is right, only ten of them will be in their last week of benefits and show up for the job interview. andone of them will be hired. leaving 99 still out of work. both the 9 who showed up and the 90 who did not. now, another week goes by, and another ten slackers are now in their last week of benfits and they all go out and apply for the next job opening. one of them gets hired… and so on.
notice that nothing has really changed, except the 90 then 80 theen 70 and so on folks who get to keep eating. you still have 99 then 98 then 97 folks out of work, and three formerly unemployed now working.
the point here, if it is not obvious, is that the longer benefit may indeed result in some, or even most, people waiting until the last week to “get serious about finding a job.” but all that does is reduce the line at the job opening. giving those in their last week… or Bob, who knows better than to wait to the last week… a 9 to 1 chance of (not) getting that job instead of a 99 to 1.
i hope i don’t have to explain this better.
and while its true that those nine who ran out of benefits each week could have improved their chances by applying every week instead of waiting until the last week… if all 99 of those still unemployed had also applied, it would NOT have improved their odds.
and the length of the unemployment benefit doesn’t have much to do with the length of unemployment.
and what is seriously funny about this is that we are arguing about nothing. the government already knows this and adjusts the unemployment period according to the number of job openings relative to the number of unemployed.
according to Bob, and the learned economists, unemployment would never end if the government extends unemployment periods. at least until recently we had a sane government that extended “unempoyment” AFTER the number of unemployed was too high to expect folks to find a job in a week… whether they were looking or not… and then the government cuts the unemployment insurance period AFTER the number of unemployed falls… NOT in order to make it fall.
But economists and folks like Bob know in their bones that this is just backwards. Clearly if folks are starving they will look harder for work, and all of them of course will find it, because there is always a hundred jobs out there for every hundred people who can’t find one.
You didn’t answer my question.
If you are saying that evidence disproves the conservative claim that unemployment insurance causes unemployement, then please say so in layman’s terms so we can take the ball and run with it? Thank you.
I thought that’s what I was doing. But if you are addressing Steve Roth, I agree with you.
Problem is, I think, that Steve and others think they are addressing their “peers” (other economists).
my own “proof” relies more on common sense than “data.” So yes, it would be nice to have someone explain the data. Be prepared however for someone to come along and dis-explain it.
I guess I thought I had answered your question.
It depends. What is the actual state of unemployment in the area the person you are asking about? If there are a thousand people unemployed and only two or three job openings per month, it might be wise to continue unemployment benefits until either the situation improves or we have thought of another way to find work for people.
It is not the case in a modern industrial economy that people can be expected to find work for themselves at all times.
Then, and I believe this is the case, unemployment insurance runs out after a “time.” And this time does not appear to be excessive to most observers.
Only those of you who are convinced that there is always a job that someone can find if only they try hard enough, believe that cutting off benefits will “solve the unemployment problem.”
Those people who are unemployed through lack of their own personal effort start running into a bureaucratic nightmare of “proving” that they are looking for work. Or qualifying for welfare.
The situation is not pretty. And it is NOT lazy people sucking on the government teat as people like Rush Limbaugh and Alan Simpson like to pretend.
as far as “nobody said… you can’t keep looking for a better job while working as a hamburger flipper.”
well, when I was a boss i did not find it amusing when the help took the day off to look for another job.
so I guess “I said.”
while you are complaining that I did not answer your question, i note that you show no evidence of having actually read my answer.
this is the sort of thing that makes me grouchy.
just to refresh your memory: even though many unemployed will wait till the last minute before they get serious about looking for a job, that will NOT affect the unemployment rate as long as the jobs that do come open are filled right away by people who are serious about looking.
your “logic” that “because i will wait to the last minute, therefore unemployment is caused by unemployment benefits” is faulty, and it is faulty because at any given time it is the case that enough people are “seriously looking” that the jobs that do come open are immediately filled.
i would love to see some evidence that you actually thought about this.
How long should the Gov payout Unemployment Compensation?
As long as it takes to return to a 66.7% Participation Rate last experienced November 2001. Since then, job growth has not exceeded population growth on numerous occassions which is the only way to get the Civilian Labor Force (Unemployed) and Not In Labor Force back to work. Participation Rate in at 63.8%.
Would you rather have them on unemployment or welfare? That’s the choice…unless you are willing to just let them die.