But could there be a downside?
Could the net effect of continuing the UI benefit extensions in the current
environment possibly weaken the labor market by providing a disincentive for UI
recipients to return to work? The answer is a resounding gno.h In the two most
careful studies available on the effects of UI extensions on job search in the
Great Recession, Farber and Valletta (2013) and Rothstein (2011) both find a
very small increase in the duration of unemployment arising from the extensions,
but they find that this is primarily because workers who receive UI benefits
are less likely to simply give up looking for work. How can that be?
Remember, to be counted as unemployed, workers must be actively seeking work;
likewise, to receive UI, workers must be actively seeking work. These studies
find that most of the small increase in unemployment duration attributable to
the UI extensions comes from the fact that receiving UI is giving people a
reason to continue looking for work even though job prospects are bleak, and
that means they continue being counted as unemployed. This is actually a good
thing because it may increase the share of displaced workers who ultimately find
work.
Furthermore, these studies do not take into account
the macroeconomic effects discussed previously—e.g., the
roughly 310,000 jobs that would be supported by continuing UI benefit extensions
through 2014. All else equal, discontinuing the UI extensions and thereby losing
those 310,000 jobs would increase the unemployment rate by around 0.2 percentage
points relative to where it would have been if the extensions had continued.
Taking into consideration all of these factors, there is no doubt that
continuing the extensions would benefit the labor market as well as assist the
long-term unemployed.
Final cost much lower than the esticker pricef
The actual net cost of continuing the UI benefit extensions is far less than
the $25.2 billion gsticker price.h The 310,000 jobs created or saved by the
economic activity this spending generates will in turn generate greater federal
revenues from the taxes paid on the wages earned by those who otherwise would
not have jobs. They will also save the government money on safety net spending
related to unemployment (for example, Medicaid and food stamps). In other words,
when people have jobs, government revenues increase and government expenditures
go down.
Specifically, spending $25.2 billion to continue the unemployment insurance
benefit extensions through 2014 would generate a $37.8 billion increase in GDP
and, correspondingly, $14.1 billion in higher revenues (as more people and firms
pay taxes) and lowered expenditures.
That is, $14.1 billion of the $25.2 billion cost of the UI benefits extension is
recouped from the taxes paid and expenditures lowered by the increased economic
activity generated. Consequently, the effective cost to the federal budget of
continuing the UI benefits extension for a year is $11.1 billion instead of
$25.2 billion. This means that the continuation of unemployment insurance
benefit extensions through 2014 would save 310,000 jobs at an effective cost of
around $36,000 per position. That alone is a good deal, but when we remember
that these expenditures would assist millions of families of the long-term
unemployed during the worst downturn in seven decades, the case for continuing
the extensions could not be clearer.
About the authors
Heidi Shierholz joined the Economic Policy Institute as an economist
in 2007. She conducts research on employment, unemployment, and labor force
participation; the wage, income, and wealth distributions; the labor market
outcomes of young workers; unemployment insurance; the minimum wage; and the
effect of immigration on wages in the U.S. labor market. She previously worked
as an assistant professor of economics at the University of Toronto, and she
holds a Ph.D. in economics from the University of Michigan-Ann Arbor.
Lawrence Mishel has been president of the Economic Policy Institute
since 2002. Prior to that he was EPIfs first research director (starting in
1987) and later became vice president. He is the co-author of all 12 editions of
The State of Working America. He holds a Ph.D. in economics from the
University of Wisconsin-Madison, and his articles have appeared in a variety of
academic and non-academic journals. His areas of research are labor economics,
wage and income distribution, industrial relations, productivity growth, and the
economics of education.
Endnotes
A Center on Budget and Policy Priorities fact sheet (CBPP 2013) explains
that in most states, workers who have been laid off are eligible for up to 26
weeks of benefits from their regular state-funded unemployment compensation
program. Currently, workers in any state who exhaust their regular UI benefits
before they are able to find a job can receive up to 14 additional weeks of
benefits through the temporary federal Emergency Unemployment Compensation (EUC)
program. The number of additional weeks rises to 47 weeks in states with
particularly high unemployment rates. For a fuller explanation, see CBPP
(2013).
This rough estimate is based on the fact that according to the latest
available data from the Department of Labor, an average of $2.1 billion per
month in Emergency Unemployment Compensation benefits were paid out during the
first seven months of 2013. See Department of Labor (2013).
See methodology in endnote 2 of Mishel and Shierholz (2010).
References
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See more work by Lawrence
Mishel and Heidi
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