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Home Publications Blogs Beat the Press Long-Term Unemployment: It's the Benefits (in part), Stupid

Long-Term Unemployment: It's the Benefits (in part), Stupid

Sunday, 06 June 2010 01:26

There is no doubt that this is the steepest and longest downturn of the post-World War II period. However, the number of the long-term unemployed (more than 6 months) is not a good measure of its severity.

The reason is simple, benefits are available for a much longer period of time than has been the case in prior downturns. In some states benefits are available for as long as 99 weeks. This gives unemployed workers the opportunity to spend more time looking for work than would otherwise be the case. Therefore, they are less likely to take a job that means a large pay cut and/or does not fully utilize their skills. Also, some people who may otherwise drop out of the labor force continue to search for work (and get counted as unemployed) because looking for work is a condition for receiving benefits.

It is important to realize that this does not necessarily mean that extended benefits are raising the unemployment rate. If the long-term unemployed took low-paying jobs they would mostly be replacing other workers. However, the unusually long duration of benefits prevent a direct comparison of the number of long-term unemployed across recessions.

[Addendum: From some of the comments I realize that I may not have been very clear. I think that extended benefits are a good thing. We have a very severe problem of unemployment; the worst since the Great Depression. In this context, it makes sense to give unemployed workers more time to look for new jobs. That increases the probability of finding a job that fully utilizes their skills. (To take an extreme example, it would not only be bad for the worker, but a loss of skills for the economy if a brain surgeon was forced to take a job as a checkout clerk.)

However, if we extend the period of benefits to allow workers to take more time to find an appropriate job, then it should not be surprising that workers take more time to find an appropriate job. The duration of unemployment is no longer a consistent measure of the severity of the unemployment problem. This is just a measurement issue that reporters (and many economists) have been getting wrong.]

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written by Queen of Sheba, June 06, 2010 9:40
Texas is faring relatively well in the unemployment sweepstakes - approximately 8.3%. Even so, there are five applicants for every job opening that doesn't require specialized education, such as engineers, research scientists, medical professionals. At least the government has made some income available to the long-term unemployed by extending unemployment benefits - income that is sure to be spent immediately. The idea that extending unemployment benefits is facilitating laziness and a fraud on the taxpayers is ludicrous. It's just as fraudulent for banks to be allowed to keep toxic assets on their books and call them "assets" as they pay out huge bonuses to their employees, made possible by the taxpayers.

It's an age-old game by the wealthy and powerful - keep the serfs fighting among themselves so they have no time to fight the elite.
Zero sum thinking
written by Political Season, June 06, 2010 9:50
Professionals don't compete for their work purely on cost alone, nor do employers only hire on the basis of cost, especially not when it comes to skilled workers. Low skilled workers are subject to such market forces. You seem to suggest that if the American working man and woman become serfs in the service of employers, that would be okay. Free markets are not free, the elites manipulate them in any number of ways to gain economic advantage. The Darwinian approach you seem to favor may benefit the elites, but the zero sum approach just means the regular joe can be exploited moe readily as cheaper and cheaper labor and with less and less opportunity. If that's the world Tea Party folks want to create, they will always be a very vocal, but minority voice.
written by Gendo Ikari, June 06, 2010 9:59

What a perfect way to drive wages to "minimum wage"--which, I assume, is zero (under ideal conditions, of course) in the "Zero Sum Teabagger Minimum Wage Plan".

When everyone's wages are driven to zero, who is going to buy your products to give you all that juicy profit? Or maybe the truth is that you secretly want to live as an "elite" in a 3rd-world hellhole?

Where do you work, izzatzo? Since I'm unemployed right now I'm sure I could underbid you for your job, and your employer would be thrilled with the results.

Here's a thought: Think more than one step ahead before throwing stones...
written by Steve in WI, June 06, 2010 1:11
izzatso in just having fun.
No real teabagger would refer to their plan as the "Zero Sum Teabagger Minimum Wage Plan". Not only do they not refer to themselves as "teabaggers" but they really don't have a plan other than to take back "their" country.
written by wally, June 06, 2010 3:06
Since most of their jobs have been moved to China, a lot of people would consider your analysis laughable.
written by A, June 06, 2010 6:35
While one might quarrel about the proper measurement of the severity of the depression, this post is certainly written to be quoted by those who want to paint a rosier picture of the current economic crisis, so as to prevent further stimulus packages or redice the budget deficit. Wingnut fodder! The post seems to imply that longer unemployment benefits are a bad thing, or at least make us look bad.
(Perhaps equally bad as the Europeans, who had longer unemployment benefits for a long time? Can't have that. US must look better.)
Those unemployed I know (Silicon Valley Engineers, programmers)of are very willing to take lower pay and lower-competency jobs; but what they typically hear is that they are overqualified. (Employers fear they might leave if something better comes up, and in the meantime they can pay a younger person much much less; but then the guy/gal who just graduated is also told that he has not enough experience; in the mean time, let's have it done by an outsourcing firm).
DeadBeat Dads---ROOTs of This Crisis
written by The Deadbeat Dad, June 06, 2010 10:44
LT Unemployment Crisis--It's the deadbeat dad policies, STUPID !

When you burrow down to the root causes of our economic rot, you find that having 12 million 'deadbeat dads' is like having an anchor around the neck of our economy.
During good times, it could be ignored ( or papered over).

If you found yourself between a rock & a hard place, what do you choose?

Do you work 52 weeks of the year for net 150% of the poverty line...or skip the work completely, live at 100% of the poverty line through welfare and UE benefits?

Why work a full year for an extra $50 bucks a week? You're gonna be livin' down at the curb either way!

Clearly these reforms are needed, and the $$ required to restructure those laws can be found in the cushions of Warren Buffett's couch.

We have committed hundreds of billions of QE and bailouts to the auto companies, Fannie & Freddie, Gnma, FHA, cash-for-clunkers, unemployment, food stamps, the new buyer home credit.

NONE of that crap addresses the root cause, which are deadbeat dad policies which have eviscerated our middle class.

written by Rachel, June 07, 2010 9:49
Thanks for the addendum.

About Izzatzo's suggestion that doctors, lawyers and bankers compete with each other ... do they really? Part of what has led to our health care crisis is that doctors do not compete as much as they should. Worse still, they and lawyer and bankers support laws that artificially increase demand for their product. And reduce demand for other employees.

written by Ellis, June 07, 2010 12:28
Thanks for the addendum. But I still find your post completely wrong-minded. You forget that unemployment benefits are being drawn by a much smaller proportion of the unemployed than before. You also forget that those benefits cover much, much less lost income than before. And, on top of that, as opposed to the past, unemployment benefits are now taxed!
Obviously, the real reason for the length of unemployment is the severity of the recession and the disastrous number of job cuts by private and government entities.
In other words, you don't see the forest for the trees!
Extended Benefits Makes a 0.4% Difference in Unemployment Rate
written by FoonTheElder, June 07, 2010 12:46
The problem in this recession is that there are very few jobs of any type. The only areas in my local newspaper are nursing and low paying teacher jobs (bilingual). I've been keeping track of Finance & Accounting jobs. Usually there are anywhere from 2 to 6 bottom of the barrel jobs each week.

Extended benefits, in this recession, result in no significant increase of the unemployment rate.

"..according to a new paper from the Federal Reserve Bank of San Francisco, which says the availability of extended weeks of unemployment has little effect on the unemployment rate.

The study calculates that "in the absence of extended benefits, the unemployment rate would have been about 0.4 percentage point lower at the end of 2009, or about 9.6 percent rather than 10 percent." "

two side to this story
written by Allan , June 07, 2010 6:15
It's very easy to point the finger at a program which supports longer term job searches and say it is to blame for people not getting hired.

If this were true, one could could make a better argument that employers, not job-seekers are primarily responsible for holding out, and that long-term benefits are a reinforcing incentive for companies not to hire from a long-term unemployed labor pool. It marks people in this pool as being untalented and stale, and perpetuates a false illusion in business that any forward economic movement can be sustained without assistance of people from this pool.

Remember, unemployed individuals are held to a high degree of accountability in continually bidding for jobs -- they are compelled by the state, even in an unreceptive market to fill search quotas by quality, manner of contact and numbers -- whereas corporations are not held accountable in any way by the state to satisfy these same criteria.

What I am worried the creation of a semi-permanent underclass of people deemed unworthy of employment.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.