Natural experiment on unemployment compensation

[oldfart]

A big argument made on the right is that unemployment compensation causes the unemployed to not seek jobs as vigorously and therefore lowers employment. So conversely, when in January Congress in its infinite wisdom let extended unemployment benefits expire, there should be a surge in employment, at least among the formerly long term unemployed, right?

It's a wonderful story except for one problem: it never happened. There is not one shred of evidence that cutting unemployment benefits off at 26 weeks led to a single extra worker employed; zero, zip, nada. The lack of comment from the same right-wing economists on this fact is deafening. Apparently there is no way to even cook the numbers to feign such an effect that was pronounced with such vigor just a few months ago.

This is pretty much the state of all conservative labor economics: politically attractive speculation with absolutely no evidence. At least in a demand-constrained economy (Hello, what have we been in for the last six years?).

Of course silly things like theory and evidence never have gotten in the way of conservatives living in The Alternate Reality. This is a proto-typical zombie idea. It does not matter how often it is disproven, after a few weeks someone will trot it out again to "prove" the "common sense fact" (code for something that can't be proven therefore must be passed off as self-evident even when all the facts show it to be false) that the way to fight unemployment is to abolish the minimum wage and all unemployment benefits. Anyone want to bet that this solution will not be advanced by Republicans in the coming election?

 

[DGS49]

Dear oldfart person. How about this as an "excuse" for eliminating extended unemployment benefits:

UEC is INSURANCE! You pay a bit and your employer pays a bit out of every paycheck while you are working. As with any other kind of insurance, if the indemnified event occurs (i.e., you lose your job), you are entitled to be indemnified up to the limit of coverage. The limit of coverage on UEC is 26 weeks of compensation. At that point you have exhausted the benefits you and your employer purchased with your payroll contributions. Anything beyond 26 weeks is nothing more than a government handout, at the expense of your productive American neighbors.

The U.S. Federal Government does NOT have any extra money sitting around. Every dollar they spend on "extended unemployment benefits" must be borrowed. When money is borrowed, the taxpayers have to pay interest on it in perpetuity, or if something really crazy happens, repay the debt.

And why should the people who have already gotten 26 weeks in benefits be singled out for this generous treatment? Are they more deserving than never-employed adults looking for their first job? Women trying to get back into the workforce after many years of raising children? Unemployed people whose benefits ran out a couple years ago, but they still haven't found work?

Could the money be better spent on repairing our crumbling infrastructure, or building a fucking high speed train in California?

Regardless, it is money that is not sitting somewhere waiting to be spent. It is money that would have to be borrowed for the purpose.

No fucking justification in the world.

 

[Kimura]

The U.S. Federal Government does NOT have any extra money sitting around. Every dollar they spend on "extended unemployment benefits" must be borrowed. When money is borrowed, the taxpayers have to pay interest on it in perpetuity, or if something really crazy happens, repay the debt.

Um....the US government doesn't have or not have any dollars sitting around. The federal government is basically the scorekeeper of the USD.

From the whom does the US borrow and where? Quick answer: the federal government doesn't borrow its own fiat. It has a public monopoly on the dollar as the only entity which can issue dollars. This is a huge misunderstanding, we're still talking as if we're on the gold standard. Once Nixon closed the gold window, it's completely changed the policy space. We forgot to rewrite the economic textbooks, but things are changing, there is a paradigm shift on the horizon.

Let's tackle the tax meme the pundits always rehash: the federal government must FIRST spend $$$$ into existence before we can even pay our taxes. This is the ONLY way for the non-government to obtain $$$$. The government doesn't take any funds from the private sector in any capacity in order to spend. Sure, it collects taxes, but taxes don't fund spending at the federal level in any capacity.

Lastly, in the post-gold standard/convertible f/x world, the dollar isn't backed by anything except for the federal government's promise to accept its own IOUs at face value to settle any tax obligations.

And why should the people who have already gotten 26 weeks in benefits be singled out for this generous treatment? Are they more deserving than never-employed adults looking for their first job? Women trying to get back into the workforce after many years of raising children? Unemployed people whose benefits ran out a couple years ago, but they still haven't found work?

There's 24 million people out there that need a job but can't find work. There's only 4 million job openings. What should we do? Let them starve? Reopen the poor houses?

Could the money be better spent on repairing our crumbling infrastructure, or building a fucking high speed train in California?

Regardless, it is money that is not sitting somewhere waiting to be spent. It is money that would have to be borrowed for the purpose.

No fucking justification in the world.

We need a Job Guarantee that way the government can employ and and all available labor. Sure, we could start with infrastructure, education, health care, R&D, green and nuclear power, biotech, IT, etc.

We have the $$$$. The constraints aren't financial, the only constraints we be on the asset side (real resources). Since the Great Recession, we've had over 5 trillion in lost output. It's not coming back and the private sector isn't going to magically fix itself. It simply can't due to our idiotic fiscal policy.

 

[Kimura]

A big argument made on the right is that unemployment compensation causes the unemployed to not seek jobs as vigorously and therefore lowers employment. So conversely, when in January Congress in its infinite wisdom let extended unemployment benefits expire, there should be a surge in employment, at least among the formerly long term unemployed, right?

It's a wonderful story except for one problem: it never happened. There is not one shred of evidence that cutting unemployment benefits off at 26 weeks led to a single extra worker employed; zero, zip, nada. The lack of comment from the same right-wing economists on this fact is deafening. Apparently there is no way to even cook the numbers to feign such an effect that was pronounced with such vigor just a few months ago.

This is pretty much the state of all conservative labor economics: politically attractive speculation with absolutely no evidence. At least in a demand-constrained economy (Hello, what have we been in for the last six years?).

Of course silly things like theory and evidence never have gotten in the way of conservatives living in The Alternate Reality. This is a proto-typical zombie idea. It does not matter how often it is disproven, after a few weeks someone will trot it out again to "prove" the "common sense fact" (code for something that can't be proven therefore must be passed off as self-evident even when all the facts show it to be false) that the way to fight unemployment is to abolish the minimum wage and all unemployment benefits. Anyone want to bet that this solution will not be advanced by Republicans in the coming election?

Have you read Piketty's Capital in the Twenty-First Century? I just downloaded it on my Kindle and I can't put it down.

 

[RandomVariable]

Why if extending the unemployment insurance benefits would boost the economy who one not do it? Let's say say, for the sake of argument, that an extension would cause people not to look for work. (OP demonstrates otherwise but just saying.) What do we care if nobody looks for work? We are boosting the economy and it makes no difference to us what people do.

 

[Kimura]

Why if extending the unemployment insurance benefits would boost the economy who one not do it? Let's say say, for the sake of argument, that an extension would cause people not to look for work. (OP demonstrates otherwise but just saying.) What do we care if nobody looks for work? We are boosting the economy and it makes no difference to us what people do.

Our political class if full of idiots, reactionaries and ideologues, that's why.

We have both demand deficient and structural unemployment. We currently have a shortage of available jobs relative to the overall supply of labor resources at our current wage levels so to speak. We call this demand deficient because it exposes the glaring shortfall in aggregate demand. This is all a consequence of our current macroeconomic system which has simply failed to create enough jobs for the available workforce. We can see this as plain as day with the current output gap.

I agree with the OP. We should extend unemployment benefits (two years minimum) until we can apply the correct fiscal policy to dig ourselves out of this mess.

 

[Mr. H.]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

 

[Rshermr]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

Excellent. Since there are no stories, at least that you have found, of masses (what is your definition of "masses"?) dying on the streets, then we should not worry about 1. The fact that some number are in abject poverty when ue payments stop, and 2. that they are spending less and 3. That therefore the economy is less robust and 4. that only a few die due to starvation or lack of ability to pay for medical services or 5. that as a result of less spending and resultant reductions in aggregate demand more unemployment will result.
Because, of course, the far right believes, apparently, that since they can not find articles on mass starvation, then everything must be just fine. Perfect. Got it. And therefore, the wealthy can increase their wealth as a result of not paying the extra (very small) amount that would be required to extend ue payments. Perfect. Screw the unemployed, screw the economy, as long as the wealthy can be more so.

 

[RandomVariable]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

Ironic that I am listening to Rep. Ryan testify in front of the Rules Committee for his budget a couple weeks ago. He is giving a drastic scenario if the budget is not balanced in all possible haste. Who is drawing a more accurate projection? There is an alternative budget which is realistic, more realistic than Ryan's. If unemployment benefits are not extended people will have less food, or at less lower quality food.

(Rep. Sessions just compared the U.S. to Greece. Rep. Ryan agrees.)

 

[Rshermr]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

Ironic that I am listening to Rep. Ryan testify in front of the Rules Committee for his budget a couple weeks ago. He is giving a drastic scenario if the budget is not balanced in all possible haste. Who is drawing a more accurate projection? There is an alternative budget which is realistic, more realistic than Ryan's. If unemployment benefits are not extended people will have less food, or at less lower quality food.

(Rep. Sessions just compared the U.S. to Greece. Rep. Ryan agrees.)

Yup. And then again, sessions and ryan tend to channel Reagan whenever possible. Perhaps we should do as reagan did when the ue rate hit the second highest rate in the history of keeping track of it, during reagans first term after lowering tax rates by a new record amount. Lowered the rates in Feb 1981 as I recall, and the ue rate rocketed upward for the next 15 months or so. To 10.8%. Highest to this point in time since the great depression days of 1929.
So, since sessions and ryan love reagan, perhaps we should follow his lead. And what did reagan do?? Why, he increased taxes 11 times and increased gov spending greatly. Stimulated the heck out of the economy. And what do you know??? Why, it worked. Perfect.

 

[Kimura]

(Rep. Sessions just compared the U.S. to Greece. Rep. Ryan agrees.)

^^^^^

See....this is what I mean by our elected officials being idiots. The US, as a currency issuer, can NEVER end up like Greece. A more accurate description would be to compare Greece to a US state.

 

[RandomVariable]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

Ironic that I am listening to Rep. Ryan testify in front of the Rules Committee for his budget a couple weeks ago. He is giving a drastic scenario if the budget is not balanced in all possible haste. Who is drawing a more accurate projection? There is an alternative budget which is realistic, more realistic than Ryan's. If unemployment benefits are not extended people will have less food, or at less lower quality food.

(Rep. Sessions just compared the U.S. to Greece. Rep. Ryan agrees.)

Yup. And then again, sessions and ryan tend to channel Reagan whenever possible. Perhaps we should do as reagan did when the ue rate hit the second highest rate in the history of keeping track of it, during reagans first term after lowering tax rates by a new record amount. Lowered the rates in Feb 1981 as I recall, and the ue rate rocketed upward for the next 15 months or so. To 10.8%. Highest to this point in time since the great depression days of 1929.
So, since sessions and ryan love reagan, perhaps we should follow his lead. And what did reagan do?? Why, he increased taxes 11 times and increased gov spending greatly. Stimulated the heck out of the economy. And what do you know??? Why, it worked. Perfect.

Now that we are off topic I am going to run with it. I was listening to a Committee hearing the other day. Rep. Woodall, Mr. Over-animated himself, was talking about cutting the debt and deficit. He stated how getting to a balanced budget would allow the government to fund education, programs for children, and other social programs. I think this is supposedly an understood but unstated concept. The Republican's seem to think that social programs and investment in America are good things. They are just to put it off until after the budget is balance, and maybe the debt is payed off. That does not make any sense in several ways but it seems to be their reality.

 

[guno]

Amazing that there are no stories of masses starving to death in the streets since unemployment comp was cut short.

Amazing that we always find money for wars and more wars

 

[RandomVariable]

(Rep. Sessions just compared the U.S. to Greece. Rep. Ryan agrees.)

^^^^^

See....this is what I mean by our elected officials being idiots. The US, as a currency issuer, can NEVER end up like Greece. A more accurate description would be to compare Greece to a US state.

I am working on a theory how the mega-rich who are funding the Republican campaigns demonstrate that these people are not champions of industry and do not understand business and economic fundamentals. They only evaluate the equation on their layer, which is above the champions of industry. Investment is absolutely necessary. One of the most glaring example is return on investment. There are several programs that this government underfunds or defunds which have amazing multiples on investment. Beside ideology way would one not take advantage of that?

 

[jasonnfree]

This may be a little off subject but still about jobs: do any of the real economists posting here think that the off shoring of manufacturing jobs and importing of hb-1 visa holders that work for less, has hurt the job situation in this country? If the answer is yes, what could be done about it?

 

[Moonglow]

One main problem is that employers will not hire long term unemployed, they claim their skill level deteriorates after the time off work...

Sweden had much more success by helping to keep skills current through education and public sector jobs.

 

[The Rabbi]

A big argument made on the right is that unemployment compensation causes the unemployed to not seek jobs as vigorously and therefore lowers employment. So conversely, when in January Congress in its infinite wisdom let extended unemployment benefits expire, there should be a surge in employment, at least among the formerly long term unemployed, right?

It's a wonderful story except for one problem: it never happened. There is not one shred of evidence that cutting unemployment benefits off at 26 weeks led to a single extra worker employed; zero, zip, nada. The lack of comment from the same right-wing economists on this fact is deafening. Apparently there is no way to even cook the numbers to feign such an effect that was pronounced with such vigor just a few months ago.

This is pretty much the state of all conservative labor economics: politically attractive speculation with absolutely no evidence. At least in a demand-constrained economy (Hello, what have we been in for the last six years?).

Of course silly things like theory and evidence never have gotten in the way of conservatives living in The Alternate Reality. This is a proto-typical zombie idea. It does not matter how often it is disproven, after a few weeks someone will trot it out again to "prove" the "common sense fact" (code for something that can't be proven therefore must be passed off as self-evident even when all the facts show it to be false) that the way to fight unemployment is to abolish the minimum wage and all unemployment benefits. Anyone want to bet that this solution will not be advanced by Republicans in the coming election?

Graph: Total nonfarm payroll employment (seasonally adjusted)

Oops.
That only works if you think giving people incentives doesnt change their behavior. It's an absurd proposition. It has been demonstrated many times that people with ready access to UE benefits continue to receive them instead of taking a job because the opportunity costs for giving up benefits are higher than what any job might pay.

 

[The Rabbi]

This may be a little off subject but still about jobs: do any of the real economists posting here think that the off shoring of manufacturing jobs and importing of hb-1 visa holders that work for less, has hurt the job situation in this country? If the answer is yes, what could be done about it?

For every one job off shored there are 3 created domestically. Employers hire foreign workers not because they are cheaper but because getting Americans qualified to do those jobs is tough.
So your entire post is based on fallacies.

 

[Defiant1]

A big argument made on the right is that unemployment compensation causes the unemployed to not seek jobs as vigorously and therefore lowers employment. So conversely, when in January Congress in its infinite wisdom let extended unemployment benefits expire, there should be a surge in employment, at least among the formerly long term unemployed, right?

It's a wonderful story except for one problem: it never happened. There is not one shred of evidence that cutting unemployment benefits off at 26 weeks led to a single extra worker employed; zero, zip, nada. The lack of comment from the same right-wing economists on this fact is deafening. Apparently there is no way to even cook the numbers to feign such an effect that was pronounced with such vigor just a few months ago.

This is pretty much the state of all conservative labor economics: politically attractive speculation with absolutely no evidence. At least in a demand-constrained economy (Hello, what have we been in for the last six years?).

Of course silly things like theory and evidence never have gotten in the way of conservatives living in The Alternate Reality. This is a proto-typical zombie idea. It does not matter how often it is disproven, after a few weeks someone will trot it out again to "prove" the "common sense fact" (code for something that can't be proven therefore must be passed off as self-evident even when all the facts show it to be false) that the way to fight unemployment is to abolish the minimum wage and all unemployment benefits. Anyone want to bet that this solution will not be advanced by Republicans in the coming election?

Have you read Piketty's Capital in the Twenty-First Century? I just downloaded it on my Kindle and I can't put it down.

If there are 24 million people looking for work then there are 24 million opportunities out there for making money.

 

[william the wie]

Old Fart I think you are addressing the wrong problems:

The cause of most long term UE is an effective lack of mobility due to poor local housing prices and/or a two salary family budget.

The distribution of long-term unemployment tends to be disproportionately blue.

Extended UE does not help the Rs but its lack could drive CA, IL or NJ into default prior to the 2016 election. Since Christie has effectively zero chance of winning the nomination this is a low cost/risk but possibly high return strategy. It is a smart but cynical move.