Feds’ unemployment benefits made job recession worse: Study
If you pay people not to work, they won't work — and cutting off their payments sends them scurrying back into the job market, according to new research by three academics who looked at the federal government's extended unemployment benefit program and concluded that it actually deepened, rather than helped, the jobs recession.
Once the benefits ended at the end of 2013, the jobs picture began to rebound, trouncing even some of the rosier predictions for the year, the academics said in a new National Bureau of Economic Research paper released this month.
Nearly one million workers who would have sat it out and taken unemployment benefits instead got jobs in 2014 because their benefits ended, the researchers said. And when knock-on effects are included, "nearly all" of last year's new jobs can be attributed to the end of the federal program, the researchers, led by Marcus Hagerdorn, an economist at the University of Oslo, said.
"We find that the cut in unemployment benefit duration led to a 2 percent increase in aggregate employment, accounting for nearly all of the remarkable employment growth in the U.S. in 2014," the researchers wrote.
The findings are certain to be controversial, and they contradict Democrats' insistence that paying benefits kept people looking for work, while withdrawing benefits would lead them to drop out of the job market altogether.
Instead, the end of extended federal benefits on Dec. 28, 2013, actually increased the labor force participation rate, reversing a years-long trend, the researchers said.
The academics were able to compare job growth in neighboring counties that nonetheless are in different states, and so they had differing unemployment benefit packages. The economic conditions are similar across the counties, making it possible to look at job effect of the change in unemployment.
The researchers said their findings undercut the consensus among most economists that cutting benefits would hurt jobs.
"Instead, we found that the reform led to almost a million non-participants entering the labor market," Mr. Hagerdorn and his colleagues wrote.
Congressional Republicans touted the research, which backs up their stance during the unemployment debate.
At its peak, the federal government spent $155 billion on unemployment benefits in 2010, and half of that was from the emergency program, which paid almost two years of benefits to the long-term unemployed.
Republicans insisted the extended aid expire in late 2013.
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