November 1, 2013 at 9:48 am
From a Times news article by Catherine Rampell, who should know better:
unemployment benefits to jobless workers for longer than the normal maximum of 26 weeks have been extended repeatedly, although the maximum duration of benefits has fallen from a peak of 99 weeks to 73 weeks. The Emergency Unemployment Compensation program, financed by the federal government for states that meet certain unemployment and state benefit thresholds, is scheduled to end Jan. 1.
The recent fiscal showdown in Washington make further extensions less likely. And the end of these emergency unemployment benefits could create a further drag on the economy.
The so-called food stamp cliff "may be more of a sidewalk curb," Mr. Feroli wrote in an email. "The bigger cliff, which I'm surprised people aren't talking about, is emergency unemployment benefits Jan. 1." That, he estimated, could shave 0.4 percentage point off growth in the first quarter next year.
The article mentions only the potential negative consequences to the end of extended unemployment benefits, without any mention of the potential positive consequences, which are well documented. For example, a 2011 letter from the Federal Reserve Bank of San Francisco:
Economists have cited a number of possible reasons why the natural rate of unemployment may have risen in recent years. In early 2009, eligibility for unemployment benefits was extended from 26 weeks to as much as 99 weeks. Extended benefits reduce the hardship on unemployed workers and their families during this severe downturn. However, they may also reduce the incentive of the unemployed to seek and accept less desirable jobs, which in turn may raise the measured unemployment rate. Indeed, some European countries may have higher natural rates of unemployment because they offer more generous unemployment benefits than the United States....
Valletta and Kuang (2010) estimate that the extension of unemployment benefits increased the natural rate by about 0.8 percentage point. Other estimates suggest even larger effects (Fujita 2011). Importantly, the direct effects from unemployment benefits should end after the maximum eligibility period is brought back to its normal level....
Mounting evidence suggests that structural factors may have increased the "normal" rate of unemployment to about 6.7%. Much of this increase is likely to be temporary. In particular, the extension of unemployment benefits probably accounts for about half of the increase.
And Harvard Professor Greg Mankiw's textbook Principles of Economics, which states "While unemployment insurance reduces the hardship of unemployment, it also increases the amount of unemployment. The explanation is based on one of the Ten Principles of Economics in Chapter 1: People respond to incentives. Because unemployment benefits stop when a worker takes a new job, the unemployed devote less effort to job search and are more likely to turn down unattractive job offers."
And a 2013 paper from the National Bureau of Economic Research, which found, "Our estimates imply that most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility."
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