Tuesday, March 9, 2010

GOP Continues to Castigate the Unemployed

Sunday, Tom DeLay (R-TX), former Majority Leader, claimed, “there is an argument to be made that these extensions of these unemployment benefits keeps people from going and finding jobs.”

Delay is not alone in pushing this nonsense. Last week, Jon Kyl (R-AZ) similarly accused the unemployed of being unemployed out of choice, “because [the unemployed] are being paid even though they’re not working.”

Delay and Kyl are conflating what would likely occur if the United States were at full employment and raised the generosity of benefits accorded to the unemployed. In this scenario, all those people that would like to find jobs are able to do so, but those whose jobs at the low end of the wage scale are easily substituted for by increased unemployment benefits. Those individuals then leave the work force. The theory is reasonable enough—when the unemployment rate is around 3% and benefits are increased not extended.

But we do not find ourselves in a situation with 3% unemployment, nor have unemployment benefits been increased. Unemployment benefits have merely been extended, making current unemployment benefits no more competitive with wages than they were 30 days ago, or 90 days before that. Instead, with real unemployment around 17%, it is ridiculous to suggest that, absent substantial employment benefit increases, the 12% of the work force that has lost its jobs due to the Great Recession have not done so voluntarily, in favor of the lavish insurance provided for the government.

Callousness and wrong economics aside, the most pernicious aspect of the Delay-Kyl line is that it suggests, not so gently, that the unemployed are to fault both for the individual failure to find new jobs and the larger economy’s failure to recover. Effectively, Delay and Kyl suggest that if Congress were to revoke unemployment benefits—if unemployment weren’t so comfortable—the suddenly uncomfortable, lazy jobless would be driven by economic pressure to create new jobs for themselves or fill the many jobs that are just waiting to be filled.

Of course, even if that were the case, even if there were hundreds of thousands of jobs waiting to be filled if only workers could be coaxed off the dole, wouldn’t that economic pressure simply drive wages up, making unemployment less attractive, filling those empty jobs? This is just simply not a phenomenon we are witnessing. The millions of Americans unemployed did not abandon their jobs in favor of unemployment insurance. They do not remain unemployed because they prefer visiting the unemployment office weekly. They will go back to work when there are jobs again. Taking away the unemployment safety net will simply drive people into poverty.

9 comments:

Colin said...

First, a minor complaint: 3% unemployment isn't realistic for what economists typically consider full employment.

http://en.wikipedia.org/wiki/Full_employment#Technical_issues

I'm not sure the country has had 3% unemployment since WWII.

Second, the notion that unemployment benefits result in increaed unemployment isn't terribly controversial. Even Paul Krugman concedes as much in his textbook:

Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries.

Now, does this mean that everyone currently receiving jobless benefits prefers living off of government cheese to employment? Not at all. But undoubtably there are some out there who are either avoiding the job search or delaying it because of unemployment checks. The LA Times even wrote an article last year about the "funemployment" phenomenon:

http://articles.latimes.com/2009/jun/04/local/me-funemployment4

While it is ridiculous to suggest that everyone unemployed has opted to embrace their situation and make it a lifestyle, it is also naive to think that unemployment benefits don't impact job hunting. This is likely particularly true in states with lower than average unemployment such as the Dakotas or Nebraksa (all under 5%).

Lastly:

Taking away the unemployment safety net will simply drive people into poverty.

This strikes me as at least a bit overwrought. How many people does this statement apply to?

Jason said...

Colin,
To your second point. If the government were to increase unemployment benefits, particularly in a time of "full employment" there would be a disincentive to look for work. Ben concedes this, and Krugman points to it as well. However, Ben isn't arguing, the Senate was voting, and indeed Rep. Delay and Sen. Kyl weren't commenting on an increase in unemployment benefits, but rather an extension of existing unemployment benefits. So while you're second point is accurate as a larger point, it's irrelevant to the post at hand and to our current economic situation.

Further, I don't have any idea what you're referring to when you cite the Dakotas and Nebraska.

To your final point. First, what is a safety net if not a device to prevent people from hitting bottom? Second, Ben's statement concerning driving people into poverty applies to 14.9 million Americans. Of that number, 6.1 million have been unemployed for 6 months or more.

To say that denying these Americans unemployment benefits would lead to poverty is overwrought is to simply ignore the depth and length of this most recent recession.

Colin said...

To your second point. If the government were to increase unemployment benefits, particularly in a time of "full employment" there would be a disincentive to look for work. Ben concedes this, and Krugman points to it as well. However, Ben isn't arguing, the Senate was voting, and indeed Rep. Delay and Sen. Kyl weren't commenting on an increase in unemployment benefits, but rather an extension of existing unemployment benefits. So while you're second point is accurate as a larger point, it's irrelevant to the post at hand and to our current economic situation.

And I'm not talking about an increase, I'm talking about an extension. Unemployment insurance is a disincentive to looking for work, and extending it will further delay that search.

Further, I don't have any idea what you're referring to when you cite the Dakotas and Nebraska.

Unemployment in both places is under 5%, which economists commonly regard as full employment. Therefore, unemployed people in these states face more of an incentive to live off of unemployment benefits for a while before seeking work (as they know there is a greater chance a job will await them once the benefits run out).

Second, Ben's statement concerning driving people into poverty applies to 14.9 million Americans. Of that number, 6.1 million have been unemployed for 6 months or more.

To say that denying these Americans unemployment benefits would lead to poverty is overwrought is to simply ignore the depth and length of this most recent recession.


Wait, you really think unemployment insurance is all that is keeping nearly 15 million people out of poverty? That every single unemployed person would be in poverty without such assistance?
Is that the correct interpretation of your statement?

I have no doubt that some people might be wind up in poverty, but I'm curious how many people exactly Ben thinks this is true of, which is why I asked for clarification.

Jason said...

Colin, the numbers simply don't support your contention given the current economic situation.

Let's look at the numbers. On January 31, 2010 there were 2.7 non-farm job openings in the US, but on the same date there were 16.1 million unemployed Americans. That means there is 1 job for every 6 unemployed Americans.

The sheer scale of unemployment when compared to the number of available jobs fails to even superficially support your argument that an extension of benefits delays the jobs search, unless we assume that 4 or 5 out of 6 Americans that is currently unemployed is purposefully delaying the job search to live off unemployment. It would be a bold (if not irrational) assumption the people I know whom are unemployed would probably protest.

Let's look at this from a different angle. The median weekly salary in current dollars as of the end of 2009 was $739. The average weekly benefit for someone who is unemployed is $308.

Before you respond, let's look at two more numbers. $612 is the median weekly earning for a pre-school teacher. Finally, a food preparation and service related employee made a median salary of $398.

So I ask, what's the incentive to stay out of the job market? The contention you make hardens the hearts of Americans conditions to believe "they" want it handed to "them," but doesn't really stand up against the facts.

Colin said...

Jason,

I my first post I think I went out of my way to stress that I don't think huge numbers or even most people receiving unemployment are using it to delay looking for a job. My only point was that there most certainly are people out there who are doing so, but I don't pretend to know their numbers. People living off of unemployment isn't a phenomenon which only occurs when unemployment is at 3% (which of course almost never happens).

Second, simply comparing wage data with unemployment benefits is a flawed methodology. After all, free time has a value as well, which people have more of when they are unemployed.

While it may seem irrational to opt for unemployment which works out (based on 40 hours per week) to $8/hour over a job which, for example, pays $12/hr, you also have to take into account the opportunity cost of the free time. If I value my free time at, say, $6/hr then it makes more sense for me to take the unemployment than a job. (granted, the longer someone is unemployed the less they are likely to value their free time owing to diminished marginal utility)

So, again, I stand by my contention that it is rather naive to think there aren't "some out there who are either avoiding the job search or delaying it because of unemployment checks."

Ben said...

Colin,

That's all well and good, and something neither Jason or I contest. What I think we both contest is the relevance of the observation when unemployment is so high. It may well be that so few people fall within the segment of the population you describe as to be negligible. It would seem to me--and this is obviously just a guess--that the number of people you describe form a larger segment of the population the lower the rate of unemployment; the higher the rate, the smaller the proportion of people who are delaying their job search by virtue of the unemployment largesse.

Colin said...

That's all well and good, and something neither Jason or I contest.

If you agree with me, that unemployment has at least some marginal impact on job seeking, then I don't see what your problem is with either DeLay or Kyl's statements.

DeLay said:

“there is an argument to be made that these extensions of these unemployment benefits keeps people from going and finding jobs.”

Now, if he had said that unemployment insurance prevents all people from job seeking he'd be wrong, but he instead simply said "people" -- a vague and unquantifiable term.

And let's revisit Kyl's statement:

"I'm sure most of them would like work and probably have tried to seek it, but you can't argue that it's a job enhancer. If anything, as I said, it's a disincentive. And the same thing with the COBRA extension and the other extensions here."

This is undoubtedly true -- all we can debate is the extent.

While you think the amount of people dissuaded from seeking employment due to their benefits is perhaps so few as to be "neglibible," I have my doubts. I wouldn't at all be surprised if the amount of people who either delayed or avoided seeking jobs is 20-30%. (which still means 70-80% are earnestly pounding the pavement trying to land gainful employment)

A friend of mine was layed off in December. His response? He went to Mexico for a month of surfing and spear fishing (another example of funemployment I guess). Now, he's young and doesn't have a mortgage or kids. But I doubt he is alone either in those circumstances, and there are undoubtedly others which may be delaying that job hunt for other reasons (e.g. live in a state with low unemployment, have a professional background in an in-demand sector such as health care).

Ben said...

Colin,

Clearly my problem with Delay and Kyl is that they use what amounts to a truism that accurately describes some small proportion of the unemployed to argue for the elimination of benefits for the (I would guess vast) majority of the unemployed who do not fit within that truism. It both denigrates the hardworking Americans the GOP claims to carry the mantle for and has the potential to do serious injury to them.

As far as your anecdote goes, you and I both know we can go tit-for-tat with anecdotes. It advances the ball not at all. I can, at this moment, think of ten individuals who have been unemployed for at least 6 months, two for at least two years, none of whom have embraced funemployment, and eight of whom have families to support.

Colin said...

Clearly my problem with Delay and Kyl is that they use what amounts to a truism that accurately describes some small proportion of the unemployed to argue for the elimination of benefits for the (I would guess vast) majority of the unemployed who do not fit within that truism.

Wait, Sen. Kyl is against extending unemployment benefits? I have never seen that, and a quick google search doesn't seem to turn that up either. In fact, he has a press release from last week stating he *favors* an extension:

http://kyl.senate.gov/record.cfm?id=322728

Beyond that, the only statements I have found are his quotes about unemployment being a disincentive to work -- which you seem to agree with and regard as a truism -- and the need for an extension of benefits to be paid for as per the Paygo rules.

So at this point I'm left wondering what the big deal is.