The Unemployment Insurance Surreality Continues
Scott Lincicome
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Believe it or not, writing about unemployment insurance is not my calling in life.  Instead, I first opined on the issue after being aghast at various pundits’ constant misinformation and dire predictions regarding the termination of extended, “emergency” UI in my home state of North Carolina.  After thoroughly debunking some of the myths surrounding UI here and the Tarheel State’s national implications, I sincerely hoped that the debate would improve in 2014 – that the existence of real labor market data following the nationwide termination of emergency UI would quell the misinformation and force people to report the facts.  And then I could be left to do more interesting things – like, well, anything.

Unfortunately, that has not been the case.  So here I am.  Again.

Consider the latest from The New Republic’s resident tax expert Danny Vinik, who, in a new article entitled “Conservatives Miss the Main Liberal Argument on Unemployment Benefits—the One That’s Proving Correct,” explains that conservatives have been wrong about not only the effects of cutting emergency UI on long-term unemployment, but also liberals’ “main reason” for demanding that the policy be continued:

[NYT’s Ross] Douthat and Lincicome are right that liberal predictions of a sharp drop in the long-term unemployment rate [due to people dropping out of the labor force] haven’t come true. But it’s not clear that prediction ever made that much sense in the first place. “It’s going to reduce labor force participation by less than 0.1 [percentage points],” Jesse Rothstein, a labor economist at the University of Berkeley told me, based on his estimates. “It wouldn’t be something you would see from overall participation rates.”

More important, it’s not like that prediction was the central argument liberals made in the fight over unemployment benefits. First and foremost in their minds was the raw hardship that a lapse in benefits would cause. That’s a hard effect to quantify, at least right now, but the anecdotal evidence suggests that many people who lost benefits are struggling.  PBS Newshour has been collecting stories about what has happened to the long-term unemployed after their federal benefits expired. It’s not pretty….

It’s nice to read Rothstein’s comments, given that his work has often been cited by supporters of extending emergency UI, and I’ll gladly accept Vinik’s admission that ominous liberal predictions about UI expiry never “made that much sense in the first place.”  (I agree!)  But there’s a glaring problem with Vinik’s claim that liberals didn’t make severe labor force attrition a focal point of their emergency UI advocacy: it’s demonstrably false.  In fact, beyond the Matt Yglesias quote that Vinik cites in his TNR piece, a quick Google search reveals an endless supply of leading liberal luminaries arguing immediately before and after UI expiry that it would cause a painful drop in the US labor force.

But, hey, don’t take my word for it.  See for yourself:

  • Jason Furman, chairman of the White House council of economic advisers: “You can’t get unemployment insurance if you’re not looking for a job….  When the economy is where it is today, it’s great if somebody stays there, keeps trying, keeps working hard trying to find that job. And the unemployment insurance extension encourages people to stay in the labor force, to continue looking for jobs.”  (See also, this White House Fact Sheet.)
  • Paul Krugman, in the context of North Carolina’s UI cuts: “The unemployment rate did fall — but this was due to a large drop in the labor force, as the number of people looking for work fell. Why? Well, a likely explanation is that some of the unemployed continued to search for work, and were therefore counted in the labor force, despite low prospects of finding a job in a depressed economy, because such search is a requirement for those collecting benefits. Take away the benefits, and they drop out.”
  • Evan Soltas of Wonkblog/Bloomberg/Vox, also on North Carolina (and the impetus for my initial piece on the issue): “Cutting unemployment insurance apparently hasn’t encouraged the unemployed to look harder for work: It has caused them to drop out of the labor force altogether. To get unemployment insurance, you have to actively search for work and prove that you’re doing so. The drop in the labor force suggests that this incentive was effective. Without it, more people just give up.” [Note: Soltas, to his credit, subsequently admitted that he was wrong here.]
  • Economic Policy Institute, hyperbolizing Rothstein: “Claims that continuing the UI extensions will further weaken the labor market are simply not supported by the evidence.  Continuing extended UI benefits will create jobs, incentivize people to keep looking for work who otherwise would have given up, and provide a lifeline to the families of workers who lost their job during the worst, and ongoing, labor market downturn in seven decades.”
  • CEPR, again in the context of North Carolina: “For statistical purposes, workers are unemployed if they report that they lack a job, are available for work, and are actively seeking work. Anyone receiving unemployment insurance must be seeking work to continue to draw insurance. It appears that many of the people who had their insurance terminated  simply stopped looking for work, so they are no longer counted as being unemployed.  This outcome is not actually surprising given the economic research on this topic. Economists at both the Federal Reserve Bank of San Francisco and the University of California, Berkeley have found that the overwhelming majority of people who saw their insurance payments end simply stopped seeking work. In other words, unemployment insurance kept these people in the labor force.”
  • Brad Plumer of Wonkblog (now Vox): “So even with steady improvement of late, the number of people who have been out of work for longer than 27 weeks is still historically high. And what economic research we have suggests that many workers won’t quickly find jobs once their unemployment benefits expire — there aren’t enough jobs to go around. Instead, many of them will simply give up and drop out of the labor force.”

Other examples can be found here, here, here and here.  I think you get the idea.  The fact is that liberals loudly and repeatedly warned of dire economic consequences – including a significant drop in the US labor force – that would, like, definitely result if Congress let emergency jobless benefits expire at the end of 2013.  For them and many others, it was these macroeconomic claims – not Vinik’s point about people struggling – that formed the “main arguments” for extending emergency UI.  As such, conservatives (and, ahem, this libertarian) are entirely consistent and justified in questioning whether these scary liberal predictions about UI have actually come true – especially when liberals are still demanding the program’s reinstatement and using its expiry to criticize those cold, heartless Republicans in Congress.

And what does our questioning on the US labor force find?  Based on the (admittedly early) data, the liberals were (again) wrong about emergency UI and both the overall US labor force:

And the labor force participation of the the long-term unemployed:

So, given these facts and the previous arguments of guys like Krugman and Furman, maybe we shouldn’t now trust their continued calls for retroactive extension of emergency jobless benefits (and continued demonization of those cruel Republicans)?

Crazy idea, I know.

If Vinik now wants to say that these liberal arguments were misguided, then so be it (and good for him).  And if he wants some anecdotal “evidence” from PBS to be the “main liberal argument” for spending $25 billion taxpayer dollars on a program that, while its expiry might not have pushed the long-term unemployed back to work or out of the labor force, most certainty has proven utterly unable to remedy the United States’ long-term unemployment problem, then so be it.  That’s a debate I bet most right-leaning pundits and Republican politicians would just love to have.

But somehow I doubt that Vinik’s liberal colleagues would be so eager.

The views expressed herein are Scott Lincicome’s alone and do not necessarily represent the views of his employer, White & Case, LLP.

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