President Obama and Congressional Democrats are demanding that emergency extended unemployment benefits be continued into their seventh calendar year. But after what seems like an eternity for this temporary “emergency” measure -- which adds up to 47 weeks to state unemployment benefits -- job prospects for the average American have barely improved.
Unemployment is lower now than it was in 2009, but only because labor-force participation has declined 3.4 percent over the past 10 years. A few new jobs have been created as the economy stabilized, but the ratio of the employed to the working-age population remains where it was when the job market bottomed out in 2010.
Should Congress continue this course? Some advocates for the chronically unemployed, as well as some journalists, point to the recent experience of North Carolina to argue that it should. Last July, North Carolina dropped out of the federal Emergency Unemployment Compensation program and an economic train wreck allegedly ensued. If the nation returns to regular unemployment benefits, they argue, there will be a similar result across the country.
Bloomberg Businessweek asked Chapel Hill economist John Quinterno why the state's unemployment rate dropped sharply (from 8.8 to 7.4 percent) after benefits were shortened. “Year over year,” he said, “the number of employed people in North Carolina ticked up by 6,082, while the unemployed fell by 101,901. That means the labor force contracted by 95,009.” In other words, the decrease in unemployment was due to contraction, not to job creation. Quinterno's numbers are accurate, and he's right that unemployment rates can be misleading.
But his year-over-year comparison is misleading. The exact same data he used from the BLS Household Survey show a stark contrast between the periods before and after benefits were cut in the Tar Heel State. In the five months before (February through June), more than 56,000 North Carolinians dropped out of the labor force and 31,000 jobs vanished. In the five months after the cutoff (July through November), 39,000 people dropped out of the labor force but over 22,000 new jobs were created. (Incidentally, BLS' payroll survey suggests a similar swing in the rate of job creation.)
These data add necessary context to Quinterno's argument while also bolstering the common sense understanding that longer jobless benefits tend to extend unemployment and that a tighter deadline makes even the pickiest job-seekers (the vast majority of those getting unemployment) less selective about what sort of work they'll accept.
With House Republicans open to extending benefits as long as the costs of doing so are offset, an extension is almost certain, whatever the empirical evidence shows. But the underlying problem is not one that 12 or 26 or 99 weeks of benefits can solve.
If Obama and the Democrats actually wanted to improve the lot of the unemployed, they would not be pursuing so many policies -- Obamacare, the Medicare tax hike, favoring unions and pushing a minimum wage increase -- that make hiring and job creation more expensive. As long as government policy retards job creation, unemployment compensation only provides an expensive delay of the difficult decisions that await those currently out of work.