Jobless Benefits DO NOT Cause Unemployment

The Wall Street Journal's headline asks, "Are Jobless Benefits Leading to Higher Unemployment?"  But in the very first paragraph in their story they answer their own question with A new paper from the Federal Reserve Bank of Boston suggests the answer is no -- or at least not much.   So then, why does the WSJ ask? Why not just use the headline of this post?

“Three or four million heads of households don’t turn into tramps and cheats overnight, nor do they lose the habits and standards of a lifetime. They don’t drink any more than the rest of us, they don’t lie any more, and they’re no lazier than the rest of us. An eighth or a tenth of the earning population does not change its character which has been generations in the molding, or, if such a change actually occurs, we can scarcely charge it up to personal sin.” – Harry Hopkins, Federal relief administrator under Franklin D. Roosevelt – 1933

The WSJ goes on to say that usually "more job openings means less unemployment, and vice versa. But recently, the relationship has changed: Unemployment is higher than it should be given the number of openings."

But why should that be? The Bureau of Labor Statistics clearly states that there are only 3.8 million job openings for 11.8 million unemployed Americans. President Obama once called this "math". What's NOT to understand by the Wall Street Journal and all the "economists"? The U.S. doesn't have a labor shortage, it has a labor glut --- the labor market is over-saturated. But there are some people who think that, by adding a few thousand more work visas, this will help fill this job void --- like more automation and robotics would help --- like offshoring more jobs to Asia would help --- like putting a square peg in a round hole will help solve the job shortage.

And it's not a skills gap either. This myth has been thoroughly debunked numerous times already. And it's not because people are lazy...or that they're drug addicts...or because they prefer to collect unemployment benefits (which is less than half of their previous earnings). And besides, millions of unemployed Americans have already exhausted their maximum allotted weeks of jobless benefits years ago, and yet, they are still unemployed.

And suppose an unemployed IT engineer was out of work for the past 4 years, and was underwater on his mortgage in Seattle Washington, but he couldn't sell his home to move to Bangor Maine for that job opening as a deep-fryer at McDonald's. Does that mean he is not skilled, or that he is lazy, or that he's an alcoholic or is a raving drug addict...or that he prefers to collect unemployment benefits --- when he has already exhausted all his unemployment insurance benefits 2 years ago?

There are over 4.4 million long-term unemployed Americans still being counted by the Bureau of Labor Statistics in their monthly survey, and another 7.4 million short-term unemployed Americans (for a total of 11.8 million) that are willing, able and available for work --- but there are only 3.8 million job openings. Square peg, round hole.

At the peak of the Great recession, when the unemployment rate was 10.2%, there were over 15 million Americans reported as unemployed. So by some estimates, counting those who "dropped out" of the labor force, there could be as many as 8 million long-term unemployed workers in the U.S. --- minus those who became incarcerated, went on disability, took an early Social Security retirement, or passed away (they are referred to as the 99ers)

Jobs are being created, but too few, and not enough are being created here. They are being created in Asia (and soon, in Africa). Although, mostly because of austerity programs, it's estimated that 19.2 million people are unemployed in the Eurozone (and most likely, just as in the U.S., also because of offshoring). According the Republican's logic, that must also infer that the Europeans have far more drunks and lazy hobos than we do here in the U.S.

Jared Bernstein notes in his article, Full Employment: The Big Missing Piece, that while some important parts of the current economy are showing strength (such as housing, energy extraction and corporate profitability) demand for labor remains weak.

And the churn in the US labor market is mostly from turnover in temporary part-time low-paying jobs. The Bureau of Labor Statistics' JOLT report says, "Over the 12 months ending in April 2013, hires totaled 52.0 million and separations totaled 50.2 million, yielding a net employment gain of 1.8 million [net new jobs] These figures include workers who may have been hired and separated more than once during the year."

And last year the Wall Street Journal also reported that many desperate Americans may be seeking refuge in the disability program as a last resort after their unemployment insurance and savings run out. The WSJ had cited quotes from two studies. But a recent study from Jesse Rothstein, University of California, Berkeley says, "I find no indication that expiration of UI benefits causes DI applications. Estimates are sufficiently precise to rule out effects of meaningful magnitude." In fact, last year in 2012 there were 2.8 million Social Security disability claims, but there were only 983,600 awards for "disabled workers". Awards actually went down from the previous year, from 1.01 million to 983,600.

So why the questions: "Are Jobless Benefits Leading to Higher Unemployment?" --- or --- "Are the Unemployed Gaming the System with Disability?" --- questions that are constantly being asked by what are presumably intelligent people. The GOP has wanted us all to believe this for the past 5 years, just so that they would have a reason to cut these vital benefits (unemployment and disability) to the most desperate among us. The GOP would do better by focusing more on job creation, rather than repealing ObamaCare™ or passing more anti-abortion laws.

And the Wall Street Journal can stop with the sensational headlines. There's enough yellow journalism in the media already.

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Comments

JOLTS

We do a detailed analysis of JOLTS, here.

Openings these days are often phony, with corporations refusing to hire more than qualified people due to age discrimination and other reasons.

It is the hiring that matters and basically employers these days just refuse to hire.

Nice rant, blaming meager benefits for the unemployment rate is stunning, nothing of the kind.

Yes, even Federal Reserve researchers show the jobs crisis has nothing to do with skills mismatch.

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