RALEIGH — It was a situation just begging for political demagoguery. David Price and Howard Dean, among others, were all too happy to oblige.
Having already extended the standard length of time workers were eligible to receive unemployment-insurance benefits, in 2001, and then renewing the extension twice, President George W. Bush and the Republican Congress did not pursue another extension before the end of the year. That means that, yes, right around Christmas, thousands of workers in North Carolina and elsewhere will hit up against the time limit and cycle out of the UI rolls.
Price pointed out the confluence of events: the holidays and what he called a “remarkably jobless recovery.” Democratic presidential candidate Howard Dean, campaigning in Iowa, called the move evidence of “the mean-spiritedness of this administration.”
This is just silly. Economists, starting from different premises and often using very different tools and methodologies, agree on little. But with the exception of the proposition that a government-imposed minimum wage reduces employment, particularly among the young and low-skilled, few economic notions are as widely shared as the idea that sucessive extensions of unemployment-insurance benefits actually worsen the problem they purport to address: joblessness.
The theory behind this idea isn’t hard to grasp. Changes in the unemployment rate are a function of two different trends: changes in the number of working-aged adults who say they are looking for a job (a statement that is required in order to continue to receive UI checks) and changes in the number who say they cannot find a job. Given the choice of taking a somewhat attractive job today or waiting another couple of weeks, receiving UI payments, and hoping for a better job to come along, many workers will choose the second course. It may seem strange to suggest that there are jobs going begging even in the midst of an above-average jobless rate, but this is not only true today but is always true during recessions and recoveries. Indeed, the creators of the UI system in the 1930s clearly understood this, and viewed their system not simply as immediate relief for the suddenly unemployed but also a way to facilitate a longer job search that would be more likely to find a good “fit” for the worker.
Naturally, this reasonable idea can be taken too far. That is, at some point the benefits of waiting for the “right” job to come along get outweighed by the costs (often imposed on others) of the job search. After all, there are few good reasons for a worker not to take a less-than-stellar job opportunity in the short run while continuing to search for a better opportunity in the long run. Similarly, if a jobless worker chooses to go back to school rather than accepting UI benefits, there is a short-run cost but often a long-term gain. The government does neither employers nor employees any favors by extending the UI benefits schedule over and over, thus interrupting the natural flow of workers out of the ranks of the jobless — either into paid employment or into other options such as education, training, or relocating.
The theory here is borne out by what is now a pretty strong body of evidence that UI extensions lengthen the average bout of unemployment. Before you assume this is only the belief of a few wacky right-wingers, check out this interesting discussion of the issue by left-wing Christian Science Monitor economics correspondent David Francis. He quotes research by former Clinton Treasury Secretary Lawrence Summers, now president of Harvard, that shows the link between UI extensions and unemployment spells.
The consequences of not extending UI benefits aren’t hard to predict. As the economy continues to recover in the coming months, workers having exhausted their UI benefits will continue to reenter the workforce, which will help both private and public bottom-lines.
Politicians angling for attention can pontificate about heartlessness and false economies all they want to, but economic policies should be based on sound theoretical assumptions and compelling empirical evidence — not on sound bites or Dickensian allusions. This goes double for demagogues such as Dean, whose proposed policies (high taxes, high regulations, high tariffs) would destroy even more job opportunities for the workers they claim to care about.
Hood is president of the John Locke Foundation and publisher of Carolina Journal.