Labor Market Flows and Extended Unemployment Insurance II

This is my FRED graph of the day post. Recently I was almost semi convinced by the Conservative argument that recent unusually rapid growth of employment fit what they said would happen if the extended unemployment insurance program ended. Then I glanced at the data on flows from unemployment to employment and noted that there was no anomaly January 2014 when the program suddenly ended.

This is just a follow up which I meant to post days ago. Here I post seasonally adjusted flows from the Current Population Survey

The figure shows almost no sign of effects of cutting off unemployment insurance for about 1.3 million unemployed workers. The conservative safety net as hammock theory suggests that the blue curve showing flows from unemployment to employment should have spiked –it didn’t. The progressive alsternative suggests that the green line showith the flow from unemployment to not in the labor force should have spiked — it didn’t either.

Instead the spike is in the flow from not in the labor force to employed. This should not have been affected by the policy shift. I think the spike is a coincidence with general economic improvement happening to happen at the same time as the cutoff. Now to be sure, unemployment insurance goes to people who claim at the employment office that they are looking for a job, while the CPS is a confidential household survey. Telling the CPS canvesser that you haven’t looked for a job for a month does not affect benefits. But that can’t really be a huge issue.

Now another way to look at labor demand vs labor supply. The USA is not Germany, so partial unemployment insurance for people who are involuntarily working part time is very rare (although programs do exist). This means that the number of people involuntarily working part time should not be affected noticeably by changes in unemployment insurance and should serve as an idicator of labor demand.

The number of people working part time for economic reasons was stable at around 8 million throughout 2013 then fell markedly in 2014. In contrast the number unemployed was almost exactly the same in June 2014 and December 2013. Finally, the number unemployed 26 weeks or more fell smoothly through the huge shift in their treatment by unemployment insurance.

The aggregate data could hardly be less kind to the safety net as hammock hypothesis.