Do Unemployment Insurance Benefits Encourage Reemployment?

During the 2008 Recession, the Emergency Unemployment Compensation (EUC) program provide the long-term unemployed an unprecedented maximum 99 weeks of benefits. The Obama administration urged extension of this unprecedented program, but Congress did not reauthorize it, and the benefits ended January 1, 2014.

The President’s Council of Economic Advisers (CEA) and the U.S. Department of Labor (DOL) released a report just before the program ended. It argued extending unemployment benefits can contribute to economic growth and lower the poverty. However, a Dallas Federal Reserve Bank study cautions that extending unemployment benefits could weaken the effect of Federal Reserve actions to stabilize prices and keep unemployment low by stimulating consumer spending.

The number of people receiving unemployment benefits kept growing after the recession officially ended in June 2009, which indicates that extended EUC benefits might have more of a disincentive effect on job-seeking than the CEA/DOL study suggested. In 2014, researchers at the St. Louis Federal Reserve Bank estimated that:

– If the EUC program had expired earlier in 2013, workers with 46 or more weeks of continuous unemployment would be 1.2 to 2.1 percentage points more likely to become reemployed.
– Workers would increase their search intensity, and more unemployed workers would have find and/or accept jobs.
– The long-term unemployed would be 0.4 to 0.5 percentage points more likely to exit the labor force entirely.

Another study published by NBER found that following the 2013 benefit cut, 1.8 million additional jobs were created in 2014. More than half of these were filled by workers who would have continued to be out of labor market if unemployment benefits had been reauthorized.

North Carolina resisted the extension of federal unemployment benefits, ending their program on July 1, 2013. After that, payroll jobs there rose 1.5 percent, unemployment dropped 17 percent. In 2013, the state’s GDP grew 4.2 percent, far exceeding the national average.

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