Alan Krueger: Unemployment benefits not such a boon to jobless numbers

posted at 8:50 pm on August 30, 2011 by Tina Korbe

The president repeats it ad nauseum: Congress could take any number of steps right now to improve joblessness and boost the economy, from increasing unemployment benefits to extending the payroll tax cut. But new White House chief economist Alan Krueger knows what the president seems not to: Boosts to unemployment insurance won’t stimulate the economy. If anything, such improved benefits will likely only boost joblessness. In fact, Krueger wrote a paper to that effect. The Heritage Foundation’s Lachlan Markay reports:

Krueger co-authored a paper for the Handbook of Public Economics in 2002 that seems to undercut the economic argument for extending unemployment benefits. The paper found that those benefits tend to increase the length of unemployment by discouraging the search for a new job, and may actually encourage layoffs. Conversely, the paper also found that unemployed persons who are ineligible for benefits search harder for a job and are therefore unemployed for less time. …

The paper also finds that increasing the length of unemployment benefits directly contributes to unemployment. “[I]ncreases in either the level or potential duration of benefits raise the value of being unemployed,” the paper states, “reducing search intensity and increasing the reservation wage.” More generous unemployment benefits, in other words, reduce the incentive to find employment. “Higher and longer duration UI benefits,” the paper adds,” will cause unemployed workers who receive UI to take longer to find a new job.”

On the other hand, workers who are not eligible for unemployment benefits or who have approached or reached the maximum duration of benefits, are more likely to search for, and hence to find work. The study saw an increase in the “escape rate from unemployment for workers who currently do not qualify for benefits and for qualified workers close to when benefits are exhausted.” The study calls this the “entitlement effect.”

Like other entitlements, it is meant as a “social safety net,” not an economic recovery policy. There may be humanitarian reasons to extend unemployment benefits (with corresponding budget offsets), but as a jobs program, by Krueger’s account, the policy will probably fall flat.

But whether Krueger will advise the president to abandon his ill-advised insistence on such an ineffective solution to joblessnes remains to be seen — and it seems safe to say the president wouldn’t accept such advice anyway.

Much more likely Krueger will be lauded (and listened to) for his inane conclusions about increases to the minimum wage. Oh, wait. He already has been.


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hello…

and it seems safe to say the president wouldn’t accept such advice anyway.

you know that’s right…bowles/simpson would agree…

cmsinaz on August 30, 2011 at 8:53 PM

I hear higher taxes and more regulations should help.

artist on August 30, 2011 at 8:54 PM

When has Obama ever listened to reason? He is an idealogue, nothing more.

neoavatara on August 30, 2011 at 9:02 PM

But Pelosi et al assured us that it is!

honsy on August 30, 2011 at 9:08 PM

Wait, wait, wait. Whoa.

Paying people to not work leads to people not working for longer periods of time?

sammypants on August 30, 2011 at 9:08 PM

I didn’t read the original, but the extended quote omits another key factor: jobless benefits suck and do nothing to create real demand for new jobs. As people go out and get real jobs they create new products and also are able to buy other people products.

pedestrian on August 30, 2011 at 9:08 PM

Obama…the UI President, AAA+

(Watch for falling “A”s)

Electrongod on August 30, 2011 at 9:09 PM

When has Obama ever listened to reason? He is an idealogue, nothing more.

neoavatara on August 30, 2011 at 9:02 PM

There is only his reasoning, any other is just wrong, as he knows best just like the other elites!

bluemarlin on August 30, 2011 at 9:12 PM

These people are going to learn there are still more people in this country who don’t want free sh!t, than do! I do believe that, I have to.

bluemarlin on August 30, 2011 at 9:16 PM

There wouldn’t be any unemployed people if we all worked for the government.

Skandia Recluse on August 30, 2011 at 9:17 PM

I hear higher taxes and more regulations should help.

artist on August 30, 2011 at 8:54 PM

And if they don’t we’ll just keep on doing more of the same over and over again until it does or the country implodes, whichever come first.

Chip on August 30, 2011 at 9:19 PM

Save jobs, pay more unemployment. What’s gonna happen when all the businesses get an increase in their unemployment taxes? I don’t think it will create a whole lot of new jobs/business expansions.

kringeesmom on August 30, 2011 at 9:20 PM

We need to raise the minimum wage! That way companies on the brink will LAY OFF even more workers, putting them on unemployment! After all, hasn’t raising the minimum wage done absolute wonders for the youth employment market?

GarandFan on August 30, 2011 at 9:28 PM

Companies pay state and federal unemployment based on a percentage of total payroll and claims history.The more claims the higher percentage.Still cheaper than paying salaries and bennies when you have fewer workers doing the job of many.If they cut off unemployment checks those minimum wage jobs will be a premium.

docflash on August 30, 2011 at 9:39 PM

Chauncey the Gardener would make a better president than Obama.

Schadenfreude on August 30, 2011 at 9:45 PM

Boosts to unemployment insurance won’t stimulate the economy.

Oh, for goodness sake, Tina, what do you know?

Nancy Pelosi — the most powerful woman in the history of democratic government — says unemployment insurance is the best possible economic stimulus. Best.

Jaibones on August 30, 2011 at 10:20 PM

1.More Regulations
Higher Taxes
Increased Minimum Wage
Extended Unemployment Benefits
Unlimited Collective Bargaining
Shut Down Coal Plants
Declare more animals “endangered”
Tsunami
Alien Attack

2. ??????

3. Prosperity!

mankai on August 30, 2011 at 10:26 PM

Let me say that unemployment insurance… is one of the biggest stimuluses (sic) to our economy. Economists will tell you, this money is spent quickly. It injects demand into the economy, and it’s job creating. It creates jobs faster than almost any other initiative you can name. ~Nancy Pelosi

Oh boy, can’t wait to see the fireworks between Nan and Krueger.

ButterflyDragon on August 30, 2011 at 10:30 PM

That is a feature, not a bug. Someone on unemployment welfare for 2 full years is very likely to be willing to discover that the reason they are unable to find work is that they are disabled and in need of a permanent welfare check.

astonerii on August 30, 2011 at 10:36 PM

I’ve read here about the high unemployment rate & rightfully blamed on Obama, there are not enough jobs for the almost 10% unemployed, and even Ed writing how employers will only hire people who currently have jobs but nobody wants to help the people suffering due to Obama’s failed policies.

These people obviously are workers. Most of them have never had to resort to accepting any type of government assistance in their lives. They are not deadbeats. I’m sure losing your job, home and life savings is not the highlight of their lives.

HellCat on August 31, 2011 at 12:28 AM

Krueger needs to come up with more genius ideas like his brain child ,”Cash for Clunkers”, to save the sinking US Economy.

bayview on August 31, 2011 at 12:30 AM

Someone on unemployment welfare for 2 full years is very likely to be willing to discover that the reason they are unable to find work is that they are disabled and in need of a permanent welfare check.

astonerii on August 30, 2011 at 10:36 PM

Bingo. I spoke with my father about this months ago (he was management at a construction company before he retired).

His opinion (and that of his friends who did hiring when they talked about this) was that if you had a gap of over 3 months (definitely over 6 months even if they’d be lenient now) on your resume; you needed a very good reason for that not to be a dealbreaker. Going back to school for a semester or something definite; not “I couldn’t find work”.

So once you’ve been out of work for what, 99 weeks, almost two years? You’re possibly going to need 4% unemployment (or full employment) to get hired with that albatross around your neck.

Take a lesser job, take a different job, get something; heck volunteer part time for charity work while looking (in your field if possible) so you at least have something to fill the gap. Or expect that prospective employers might not find your resume sufficient.

gekkobear on August 31, 2011 at 12:50 AM

The paper found that those benefits tend to increase the length of unemployment by discouraging the search for a new job, and may actually encourage layoffs. Conversely, the paper also found that unemployed persons who are ineligible for benefits search harder for a job and are therefore unemployed for less time. …
The paper also finds that increasing the length of unemployment benefits directly contributes to unemployment. “[I]ncreases in either the level or potential duration of benefits raise the value of being unemployed,” the paper states, “reducing search intensity and increasing the reservation wage.” More generous unemployment benefits, in other words, reduce the incentive to find employment.

DUH!!!!

Like other entitlements, it is meant as a “social safety net,” not an economic recovery policy.

Double DUH!!!!

Vince on August 31, 2011 at 2:43 AM

With the number unemployed now, this becomes a game of chicken between Obama and House Republicans. Obama gets out in front proposing extensions – he really doesn’t care about the economics of it, it is the politics he’s playing – and hopes if Congress refuses those who are cut off will take it out on the Republicans next fall.

Honestly, with 14% unemployment among blacks, 20% among Hispanics, and 22% among young people, he doesn’t have many ways to get out his base. Another year of Obamanomics, and they will have had all the Hope and Change they can stand.

Adjoran on August 31, 2011 at 3:10 AM

And after 99 weeks unemployed – they are often unemployable for a variety of reasons.

{^_^}

herself on August 31, 2011 at 5:23 AM

Here’s the paper.

The two models make very different assumptions but have similar predictions. In the Mortensen model the individual is uncertain when a job will be found and what the wage will be. One remains unemployed until a sufficiently high paying job is found. In the Moffitt and Nicholson model one can find a job anytime at a fixed wage. Their model emphasizes the leisure value that a period of unemployment may have if one optimizes over a long period of time such as a year.

It’s almost like they are psychic.

Patriot Vet on August 31, 2011 at 8:16 AM

Tina, you don’t really think that a paper someone wrote in 2002 is somehow relevant, do you?

I mean, just consider the personal growth that so many liberals have experienced since they went into government service. I’m sure Mr K has matured so much beyond his previous limited mindset since he wrote that paper.

/s

rwenger43 on August 31, 2011 at 1:52 PM

Oh boy, can’t wait to see the fireworks between Nan and Krueger.

ButterflyDragon on August 30, 2011 at 10:30 PM

He’ll do as he’s told. He’ll say what they tell him to say. He wasn’t hired for his abilities, he was hired because they know he’s one of them, and so does he.

runawayyyy on August 31, 2011 at 4:51 PM