In his weekly video address and in a speech at the White House on Tuesday, President Obama called on Congress to extend federal emergency unemployment insurance benefits, which expired at the end of 2013.
During the recession the federal government funded the expansion of unemployment insurance benefits to 99 weeks, then 73 weeks, until the end of December.
Without congressional action, the unemployed get 26 weeks of benefits, paid by state unemployment insurance funds to which employed workers and their employers contribute.
The Congressional Budget Office estimates that extending the benefits through 2014 would cost $26 billion. Despite — or perhaps because of — last month’s budget fights, neither Obama nor congressional supporters of the increase have proposed a way of paying for the extension.
Many economists, including two former Obama economic advisers, Princeton professor Alan Krueger and Harvard professor Larry Summers, have written that extending benefits increases unemployment. The longer the duration of unemployment benefits, the longer people stay out of work.
Research shows that the unemployed turn down lower-paying jobs even though they are losing job skills from remaining out of the labor force. The longer they are out of work, the more their skills atrophy. It is a vicious cycle leading to more long-term unemployment.
Obama should listen to his former advisers.
Krueger, former chairman of the Council of Economic Advisers, concluded in a 2010 paper co-authored with Columbia University professor Andreas Mueller that the more generous are unemployment benefits, the less intense is the unemployed worker’s job search.
“The average unemployed worker in the U.S. devotes about 41 minutes to job search on weekdays,” according to Krueger and Mueller. Unemployed workers increase the intensity of their job search before their benefits will be terminated.
Summers, former secretary of the Treasury and director of the National Economic Council, wrote in 1999, “Each unemployed person has a 'reservation wage' — the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer.”
On Tuesday, a bill co-sponsored by Sens. Jack Reed, D-R.I., and Dean Heller, R-Nev., to extend benefits cleared a procedural hurdle in the Senate. If it passes, it will go to the House. House Republicans do not support extending benefits.
Now is the time to end expanded unemployment benefits because November’s job news was positive. The unemployment rate declined to 7.0 percent in November from 7.3 percent in October, the economy created 203,000 jobs, and the labor force participation rate rose from 62.8 percent to 63 percent. Jobs numbers for December will be published on Friday.
Congress should use the improving labor market as an opportunity to reconsider eligibility criteria and benefit levels for programs such as unemployment insurance, food stamps and disability insurance. These programs have ballooned over the past five years, discouraging work. Low-income Americans face a high marginal effective tax rate when they take a job because they have to give up these benefits.
During most recoveries, the labor force participation rate eventually rises. Although the recovery began well over four years ago in June 2009, the labor force participation rate continues at 1978 levels, despite the increase in November. Fewer workers translate into lower economic growth.
As well as the 4 million Americans on unemployment insurance, more than 9 million adults received disability insurance from the Social Security Administration in October 2013. Over 47 million Americans receive benefits from the Supplemental Nutrition Assistance Program — popularly known as "food stamps."
Extending unemployment benefits past six months does the unemployed no favors. And adding $26 billion to the deficit hurts American taxpayers. Congress should say that enough is enough.Examiner Columnist Diana Furchtgott-Roth (email@example.com), former chief economist at the U.S. Department of Labor, is a senior fellow and director of Economics21 at the Manhattan Institute for Policy Research.