UI and job-seeking behavior

In response to: http://www.ourfuture.org/blog-entry/2010124907/nothing-99ers-and-not-much-anyone-else#comment-13378

In part informed by: http://www.philadelphiafed.org/research-and-data/economists/fujita/economic-effects-of-unemployment-insurance.pdf

I think you're missing the key point here- "99ers" do not collect benefits. That's the whole point of the term! So when you say 99ers are unemployed by choice because they're getting benefits you're confounding the issue.

You are right, however, that we have to be careful not to be "blind" in the way we look at this issue. Many folks on both left and right form their opinions by either extrapolating from anecdotes or inventing from whole cloth on the basis of axiomatic certainties.

There are three distinct effects of UI benefits on job-seeking- and job-taking- behavior, roughly divided into different phases of unemployment. These need to be examined and dealt with separately and not lumped together.

First is the effect on those in short stints of unemployment. Might someone who can collect benefits "coast" for a month or two before seriously setting themselves to find a job? Certainly. If they are fairly certain they can find work, might they be overly "choosy" and reject jobs that contain an element of difficult compromise? Of course.

This effect is limited, however. With average benefits of $300/week, most people run through discretionary cash reserves within a few months. For people with very few obligations (no children, no mortgage, etc) or larger-than-average savings, this period might be longer.

This type of pay-out is good for the economy in the short term (ie keeps people spending), but does involve a moral hazard. Still, thought the amount of UI which goes towards this kind of "hand-out" is not insignificant, it is nowhere near the majority of UI, and is less and less of the total as a joblessness crisis lengthens and deepens. Still, there may be ways to effectively "weed out" these payments- such as means-testing benefits. In terms of actual savings, however, the cost of installing a system to means-test probably doesn't make sense. If it would be reassuring in terms of the moral hazard, however, by definition it doesn’t do any real harm to the unemployed.

The second effect of UI benefits is the "hold-out" effect- the refusal of job-seekers to take jobs which would substantially lower standards of wages/salary or make difficult transitions (eg moving, splitting up a family, changing to a new field of work). Even once a job-seeker is “seriously” looking for work, UI benefits allow job-seekers to resist taking "bad deals." The benefits to society of such choices are mixed- and there is legitimate room for disagreement. On the one hand, liberals may overly “coddle” those people who have difficulty making hard choices or needed changes. At the same time, conservatives tend to underestimate the value to society of protecting established ways of life and higher-productivity jobs. Not all disruptions are productive- keeping a community intact through a “job drought” does have benefits. I’m suspicious of people who take too much pleasure in contemplating the pain being inflicted on “comfortable” middle-class folks by forced adaptation to “the market.” There is also a more-or-less acknowledged favoritism towards employers over employees - high unemployment allows employers to lower pay for the same job, with dubious benefits to society. Allowing people to “hold out” against such devaluations may be an additional positive benefit. (Note, too, that the hold-out effects overlap with the moral hazard effect in a non-mutually-exclusive way- that turning down job offers in a way which might be regarded as personally irresponsible could also benefit society).

The third effect is that UI benefits keep the unemployed in the labor force. This is the primary consideration which needs to be weighed when looking at the long-term unemployed. Studies which claim to show a large “moral hazard” effect on extending long-term benefits typically measure “exit” from unemployment in the period after benefit exhaustion- but this “exit” includes people who simply drop out of the labor force! On the other hand, studies which analyze whether or not UI benefits meaningfully change the rate of job-taking for the long-term unemployed find that they do not. Keeping people in the labor force is a major good for society, both because drop-outs have a good chance end up on government rolls anyway through either disability, welfare, etc payments, and because any reduction in the labor force constrains future economic growth.

Next up: Where does all this leave the 99ers?