The Unemployment Effect No One Wants to Talk About

During the recession, there have been two conflicting views on the labor reports. The conservative political analysts always try to make unemployment seem worse, while the liberals have a too sunny perspective. Both sides will often make good points. The Bureau of Labor Statistics data is hardly the most accurate representation of unemployment, so there's a lot of room to make valid arguments.

But there's a big factor often left unmentioned: Without the extended unemployment benefits, unemployment would be considerably lower. Hence, comparing the current level of unemployment to other periods isn't exactly an apples-to-apples comparison. Prior to the current recession, a huge body of economic research showed that longer benefits lead to longer periods of unemployment.

In an idealized vision of the world, we want to think that everyone is trying their hardest to find a job -regardless of benefits. While this may be true for some, a person with benefits faces different incentives than one without them. Clearly, one needs to find a job quicker than the other. And guess what? When economic researchers studied increases in unemployment benefits, this difference showed up in the statistics.

Let's see what the abstract of one of the most cited academic papers on the subject says,

This paper tests the effects of the level and length of unemployment insurance (UI) benefits on unemployment durations. The paper particularly studies individual behavior during the weeks just prior to when benefits lapse. Higher UI benefits are found to have a strong negative effect on the probability of leaving unemployment. However, the probability of leaving unemployment rises dramatically just prior to when benefits lapse. When the length of benefits is extended, the probability of a spell ending is also very high in the week benefits were previously expected to lapse.....
Unemployment Insurance And Unemployment Spells, Bruce D. Meyer

According to Google Scholar, this paper has been academically cited 1,378 times. For those who don't know, an academic paper with one hundred citations is considered very successful. The negative effect of unemployment insurance on unemployment duration is a well-known fact among economists.

Why are so few people discussing this? The motivation for the conservatives is pretty clear. They're not exactly trying to look at the bright side. But liberals are in a trickier situation. They strongly backed unemployment insurance extensions. So, even though pointing out these studies would reveal a slightly stronger economy, doing so would put the blame for higher unemployment on their own program. It's a catch-22. Furthermore, admitting this would attack a basic philosophical premise of the Left. We're always supposed to think that benefits can be distributed to the masses without any negative incentives. Well, this proves the opposite.

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