December 30, 2013
“It’s going to put my family and me out on the streets,” is a perspective shared by many of the 1.3 million Americans about to lose their emergency unemployment claims. The program, started during the recession, was intended to help jobless people after they exhausted state benefits, typically lasting six months. House Republicans resisted continuing the benefits without budget cuts elsewhere to cover the cost. As Bloomberg reports, opponents say the extended benefits discourage the unemployed from accepting jobs and that the program should be curtailed, given the recovery in the nation’s labor market.
“It lacks compassion for the victims of the recession and, economically, it’s shooting ourselves in the foot,” said Lawrence Mishel, the president of the Economic Policy Institute in Washington, which backs policies that help low-income workers. “The timing is very premature. The evidence is that people who want work can’t find it.”
“The economy has now been out of a recession for more than four years,” said Chris Edwards, an economist with the Cato Institute in Washington, which argues for scaling back the role of government. “These unemployment benefits are emergency benefits, but the economy is no longer in an emergency situation. People can find jobs if they are willing to moderate their wage demands and make compromises.”
“Not all of us have savings and a lot of us have to take care of family because of what happened in the economy,” said Walker, of Santa Clarita, who said she has applied for at least three jobs a week and shares an apartment with her unemployed son, his wife and two children. “It’s going to put my family and me out on the streets.”
There were 3.9 million job openings across the U.S. at the end of October, according to the Labor Department. That same month, 11.3 million people were looking for work but couldn’t find it, a gap advocates say underscores the need to keep benefits flowing.
“I just don’t know what to do, except pray.”
Of course, as we discussed in detail previously, this will mean a notable drop in the unemployment rate (for what that is worth)…
This has profound implications for the oh-so-important unemployment rate that the Fed is so dependent upon…
JPM’s Feroli: One observation that could set an upper bound on thinking about a participation effect is to hypothesize that all 1.3 million EUC claimants exit the labor force after benefits expire in 1Q (again, should Congress allow that to happen). In that case, the unemployment rate would fall by 0.8%-pt, obviously an extreme example. Some of the Fed studies can help to narrow the range of outcomes.
One of the more recent works (Farber and Valletta from the San Francisco Fed) indicates that about a fifth of long-term unemployment is due to extended benefits. With just over 4 million long-term unemployed recently, this would imply that the absence of extended UI benefits could lower the unemployment rate by 0.5%-pt.
This will directly impact the Fed’s credibility to manage the economt in a “data-dependent” manner:
JPM’s Feroli: Setting aside the normative aspect of whether from a public policy perspective this is a desirable or undesirable outcome, such a fall in the unemployment and participation rates could create some tricky choices for Fed policymakers as they assess the health of the labor market.
This article was posted: Monday, December 30, 2013 at 11:53 am