The U.S. is about to enjoy the benefit of a ‘natural experiment.’ Extended unemployment benefits are about to expire next week for another 200,000 workers, in addition to the 135,000 whose benefits expired during April.
Conservatives have long claimed that the extended unemployment benefits (up to 99 weeks) just allow people to be lazy, to claim they are looking for work while really just cashing their welfare checks. Drop these benefits, they claim, and you will see more people working at real jobs. Liberals counter that it hardly makes sense for people to try to get by on the scrawny benefits paid by unemployment, and that folks would of course take a real job if they could fine one; in the meantime unemployment benefits are essential to keep people from having to make the choice between eating and paying their rent.
In April, though, we saw a third possibility — that people who are collecting extended unemployment benefits have essentially given up looking for work, but will say they are looking as long as they can get an unemployment benefit. But when the benefit runs out, they drop out of the active workforce. In April, when over 100,000 people lost their extended unemployment benefits, we saw very weak job creation and over 100,000 people became “discouraged workers” who dropped out of the labor force. In fact, although the report’s top line noted that 115,000 new payroll jobs were created in April (a disappointing figure in itself), further down in Table A, the BLS notes that actually 169,000 FEWER people were employed than in March, due to people dropping out of the labor force and leaving non-payroll jobs.
According to the Bureau of Labor Statistics report for April, the US has 12.5 million unemployed persons, 7.9 million who are working less than full time because their hours were cut or they cannot find full-time work, and 2.4 million marginally attached workers, who say they want and are available for work but have not searched for jobs in the prior 4 weeks. That means about 15% of the entire noninstitutional civilian labor force who wants full-time work cannot find it. That this is the case 3 years after the onset of the recession is what entitles this slump to be called a depression.
But most striking and unusual is the jump in the number of people who have simply given up and taken themselves out of the labor force — 2.7 million since last April and 522,000 in April 2012 alone. No doubt many of these are retirees (the first cohort of post WWII baby boomers to officially hit 65 did so in 2010, right in the midst of this depression, so retirement was the easy way out). Still I find it astonishing and too little remarked upon that “four-fifths of the reduction in the unemployment rate since its peak has been accomplished by a dropping adult labor force participation rate — essentially persuading adults they don’t need a job, or the job they could find is not worth having,” said University of Maryland economist Peter Morici.
We will see in the coming weeks whether ending long-term unemployment benefits does provide a tough spur to people to take jobs they might not really want. More likely, though, is that we will NOT see the number of people working increase; rather it will be the number of people not looking for work that will go up. If so, it will demonstrate that cutting unemployment benefits does not lead more people to work if the economy is in fact not providing jobs. Q. E. D.