It has long been argued by free market economists that unemployment benefits deter individuals from seeking out jobs. This line of reasoning is what has prompted governments to institute certain rules and regulations behind attaining jobless benefits and keeping them for as long as the person is out of work.
A new study suggests that the decision made by Congress at the end of 2013 to refrain from extending federal unemployment benefits is what actually contributed to the creation of 1.8 million jobs last year, thus providing some data behind the aforementioned premise.
This conclusion from authors Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania and Stockholm University’s Kurt Mitman has generated a large amount of criticisms and rebuttals from other economists and pundits.
The National Bureau of Economic Research (NBER) published the working paper late last month and explained that the lack of jobless benefits encouraged those out of work to seek out jobs that paid far less than what they were accustomed to, which gave companies reason to establish employment opportunities.
During the economic collapse, Congress decided to extend unemployment benefits to help the millions of people who lost their jobs. Lawmakers enacted the law in various ways – for instance a person in one state would rely on 20 weeks of benefits while another person in a different state would depend upon 73 weeks of benefits.
Republican legislators refused to extend the program, but President Obama and other administration officials warned it would hinder the economic recovery because consumers use those benefits to purchase goods and services. The GOP says they have now been vindicated because the more the benefits were reduced, the higher the number of jobs. Mitman posited that the greatest employment gains took place in the places that had the most lavish unemployment benefits.
In addition, NBER researchers aver half of the new jobs were taken by individuals who sat on the labor force sidelines, which consists of students, seniors and workers who gave up on their careers.
Although the general notion is that the unemployed will just sleep in until noon and sit at home watching television because they’re receiving a weekly check, study authors actually argue that out of work Americans refrained from taking on jobs simply because they paid less than what they previously earned. Since they got a weekly benefits check, individuals simply bided their time for more lucrative positions.
As part of the denunciation of the paper, Dean Baker, a director of the liberal Center for Economic and Policy Research, conducted a similar study but with different data and concluded the opposite result.
Meanwhile, others say there needs to be a balanced approach to unemployment benefits.
“I don’t think I was wrong to support extending unemployment benefits during the worst of the recession. But I also don’t think that Republicans were wrong to want to curtail those extensions five years later,” wrote Bloomberg News author Megan McArdle. Both were good policy, and I hope they’ll be a model for any future crises we face.”
Some authors aren’t happy at all with the coverage this study has received thus far. The Huffington Post’s Michael Thornton reportedly sent a letter to the Washington Post to note that the NREB is run by conservative interests and stated that the study is fallacious.
“So the bottom line is, some long-term unemployed are finding work, and that’s been the case for three years,” wrote Thornton. “So to say it all corresponds to ending benefits is simply ‘conservative rubbish.’ Unfortunately, the Washington Post is unable to breathe some additional analysis into this conservative meme that ‘unemployment benefits are detriments to working.’ It’s BS. Especially considering that only 25-33 percent of all unemployed receive benefits.”
In the end, the study authors do defend unemployment benefits. They purported these benefits have assisted those who were initially laid off.
