On Fox News Sunday this morning, Sen. Rand Paul opposed extending emergency unemployment benefits for Americans who have been out of work more than 27 weeks on the grounds that doing so hurts workers. Here’s why he’s wrong.
Unemployment benefits are normally available to people who have been out of work up to 27 weeks. In 2009, Congress passed the Emergency Unemployment Compensation (EUC) program which extended the benefits to those out of work for up to 99 weeks. The EUC is set to expire on January 1st when 1.3 million Americans will lose their benefits. Another 850,000 will lose them in the next few months.
Congressional Democrats are calling for another year-long extension of the EUC, but Republicans are opposed to it.
“I do support 26 weeks of unemployment, if you extend it beyond that you do a disservice to these workers,” Paul said this morning. “When you allow people to be on unemployment for 99 weeks, you are causing them to become part of this perpetual unemployed group in our economy,”
Paul’s argument there is that giving people these benefits discourages them to take a job. They are happy to live off the government’s dole.
There are a number of things wrong with this argument.
First, to receive unemployment benefits, Americans must prove they are searching for work. This requirement exists specifically to combat Paul’s concern. A recent study found that when the benefits expire in January, the unemployment rate may drop 0.25-0.5 percentage point as disheartened workers stop looking for work when they can no longer receive benefits. The only thing keeping these Americans from giving up entirely is the EUC program.
Second, according to the Center for Budget and Policy Priorities, unemployment benefits are only $US300 per week on average, though it varies widely by state. That’s barely above the poverty line.
Third, long-term unemployed workers are at a distinct disadvantage in finding jobs. Once a person has been out of work for more than 26 weeks, employers are much less likely to hire them. This may be the greatest long-term effect of the great recession. Long-term unemployment may be making millions of workers permanently unemployable. Many of the long-term unemployed are not foregoing work because of their extra benefits. They simply can’t get jobs at all.
Fourth, the empirical evidence on how unemployment benefits affect work incentives is mixed. This past April, researchers at the San Francisco Fed looked at whether the EUC program discouraged work from 2009 to 2012. They found that the extended benefits cause a slight decrease on the unemployment exit rate, but this primarily results from keeping Americans searching for work who otherwise would have dropped out of the labour force. In other words, the benefits did not cause people to forego work. They kept people looking for it.
Other economists have found that extending the benefits has increased the unemployment rate since the Great Recession. There is no clear answer for how extended benefits affect work decisions. But think about the stakes.
The worst-case situation if Democrats are wrong is that benefits do disincentivize work. Then, extending them is wasteful ($25 billion) and enables people to live off the government. That’s not good. But the worst-case scenario if Paul is wrong is that they don’t disincentivize work. In that case, not extending them would hurt millions of Americans at a time when they need help the most.
Given the mixed evidence, each scenario is equally likely. Which one would you rather risk? Causing Americans to scam the government for a year or immiserating millions? This shouldn’t be a difficult decision.
At some point, this program must end. It’s meant to be a temporary reprieve for Americans who were hurt badly by the recession. It’s not supposed to last forever. But it is supposed to last until we have a strong recovery and we are near full employment. As the graph to the right shows, that’s how previous EUC programs have worked.
This time though, Paul and his Republican colleagues want to end benefits for millions of Americans despite weak evidence and a slow recovery.
They may be right that jobless benefits discourage work. But they may also be wrong and that’s a risk that’s too big to take.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.