North Carolina’s cuts to unemployment show that ending unemployment does not cause people to go get jobs.
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Unemployment insurance is back in the news as emergency benefits will end for 1.4 million people later this week after Congress refused to extend the emergency program enacted in 2008.
This development has brought to the surface a very old divide between liberals and conservatives over unemployment payments in general. Broadly speaking most liberals favor generous benefits for people who become unemployed through no fault of their own. They favor this both out of humanitarian grounds, people without money need money, and because they think it makes sound policy sense for the economy as a whole. According to Keynesian economy theory, which most liberals favor, since in the entire economy your spending is my income, big “shocks” like lots of laid off workers will mean less spending in the economy which in turn will lead to more layoffs, ultimately resulting in a downward cycle of social wide poverty and unemployment. The liberal solution to this problem, which Keynes advocated in the 1930’s, is to make up for “shocks” to the economy with government spending on things like unemployment benefits.
Many conservatives do not favor this analysis, or at least haven’t since 2009. Instead they often see long term benefits for the unemployed as a hindrance to economic growth because as Republican Congressman Paul Ryan says those types of programs can, “…turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives.” Republican Senator from Kentucky Rand Paul has also repeatedly made similar arguments.
So who is right? Answering questions like this about politics and economics can be very difficult. After all, politics isn’t like chemistry where you can do an experiment a thousand times in a lab. However sometimes in politics and economics events lead to conditions that come as close as possible in the real world to an actual experiment that you can probably ever get.
One such experiment happened in North Carolina over the last year. Back in July North Carolina drastically cut unemployment insurance from a maximum of 99 to 19 weeks, and from a maximum benefit of $535 to $350. Under Ryan and Paul’s thinking this should have led to the unemployed getting up off the couch and finally finding a job. So did they?
No they did not. As Evan Soltas in Bloomberg points out the results were a disaster as most of the unemployed simply dropped out of the labor force, “…North Carolina’s labor force began to shrink. The state is experiencing the largest labor-force contraction it’s ever seen—77,000 fewer people were working or searching for work this October than a year ago.” In the long run sadly this will just make North Carolina collectively poorer as fewer people are participating in the economy while making the lives of many people who drop out of the labor force that much harder.
To make matters worse these folks’ hardship won’t be going away, instead, as Soltas points out, it will just cause more strain on private charities and nonprofits:
Meanwhile, the burden of easing the financial distress caused by unemployment has shifted from public programs to private charities. According to Alan Briggs, executive director of the North Carolina Association of Food Banks, they’re struggling to cope.
“The local pantries are saying, ‘Give us more, give us more, give us more,'” Briggs said. “All that the county social workers can do now is give those in need the phone number for the local food bank.” As he told a local news station, his food banks had been “asked to be the safety net of the safety net.”
I hope this evidence causes Congress to reconsider their foolish decision to cut emergency unemployment benefits, but I doubt they will. In chemistry it’s easy to prove an alchemist is a fool if he thinks he can transmute lead into gold, in politics it’s a lot harder.
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Your headline contradicts what the body of the story concludes.
What we as a world society and Americans need to wrap our minds around is that there are too many people and too few jobs available. In the last two decades the need for middle management jobs has declined sharply and the lower cost of computers and robots will decimate many skilled labor jobs. According to a recent study 47% of U.S. jobs will be at risk during the next two decades. Also, automation will take away many of the service jobs that has been the fall back for many. http://www.dailykos.com/story/2013/12/05/1260403/-Automation-by-Private-Business-Heads-Us-to-Permanent-Unemployment# The net outcome is a large and growing number… Read more »
I don’t disagree with you on the looming issues. One thing minimum wage advocates just do not see is the incredible shift in the labor/capital equation their proposals would cause. If you double the wages for fast food workers youre going to double the potential savings for capital investment. If you’re ever in the Dallas airport- check out how many of the fast food places have touchscreen ordering and swipe payment kiosks. One person does the work of 6. Doubling the minimum wage just makes those touchscreens that much more viable. I hope we can get beyond the “take from… Read more »
I think it is possible to create jobs if entrepreneurs are willing to step down from their thrones and invest.
Wait. Am I reading this right?
First, you say that “North Carolina’s cuts to unemployment show that ending unemployment does cause people to go get jobs.”
Then, you say that “the results were a disaster as most of the unemployed simply dropped out of the labor force”.
I’m confused…
1. Are you aware of the causality between the receiving benefits and job seeking? Job Seeking is necessary to be part of the labor force which is also necessary to receive unemployment benefits. So once people no longer are on public benefits they no longer are seeking jobs. 2. People who are in need are receiving what they need from private charities. Seems to me, what we’re seeing is that people do not “seek jobs” unless they are “paid” to do so. The job seeking behaviors ceased once benefits were curtailed. Prior job seeking behaviors did not result in finding… Read more »
Yes I am aware of those things. The whole theory advanced by people like Rand Paul is that once you cut off the benefits lazy unemployed people will get off the couch and finally get a job. The reality is that the unemployed don’t have jobs not from lack of searching, but because there just aren’t enough jobs out there.
So all cutting unemployment does in the end is make people’s lives that much harder and in the long run make our society that much poorer. Thus its a terrible policy choice.
But you havent proven that. If we are going to dole out cash compensation using the “much harder” metric as our driver you justify any increase and cannot ever have a decrease in benefits. I would hope we can look to see what happens with our dependent variables and use them to adjust our independent variables. Our dependent variables (job seeking and hunger/need) cannot be shown to vary with the amount of public aid. Right now we see- no change in people working and people just seeking aid from alternate sources. I’m a North Carolina tax payer- I certainly hope… Read more »
People are categorically not getting all they need from charity. As someone who has 15 years in non profit experience trying to help people get what they need I can state this as a cold hard fact. Americans give less than 3% of their income to charity which is no where near enough to meet the need that exists. This rate of charitable giving was the same before income tax so the argument that we’d give more if we were taxed less doesn’t fly. We’re just not very charitable at heart it seems. Here’s a number to think about: 400,000,000,000.… Read more »
Emotive reasoning. Did you spend your entire Christmas budget on feeding others? I definitely gave more than 3% of my income to charitable causes. I also volunteered a significant amount of time.
One thing we never seem to pin down on these discussions is “how much” we only get to “more is better.”
Hello RevPeake and Happy New year to you and your family. Since you mentioned the amount we spend and the % that Americans give to charity, perhaps you can shed some light as to why people are giving less to charity? Perhaps you can shed some light as to why Americans spend so much on disposable gifts? Personally I think it’s ridiculous what some people spend but that’s just me. This year we did something different. Our extended family chose names this year and were committed to only spending $50 but the gifts could only be purchased at places like… Read more »
I think that by doing social experiments without analyzing the arguments being provided in the media and putting together a holistic solution, the Congress won’t be gaining much popularity, as they appear to be trying to guess, playing with people’s basic needs.
This is in my opinion, breach of human dignity, which is a human right.