Did unemployment benefits keep unemployment high?

Date posted: June 27, 2013

During the recession, the federal government extended several times the length of time for jobless workers to receive unemployment benefits. Some critics say this actually motivated some workers to stay unemployed longer. Is there any evidence this was the case? N.C. State University economist Mike Walden responds.

“Well, this has been a very, very controversial issue. It’s been debated by economists. It’s been debated by politicians. It’s been debated in the public. So, recently we’ve had a study done by two economists at the Federal Reserve Bank of San Francisco.

Now this is actually a complicated question to answer because as you might expect, a variety of factors are going to affect unemployment and how long someone is going to stay unemployed. So, this is not as simple as you might think.

But after going through data — after going through econometric models that allow them to come to some conclusions — the economists found that yes, indeed, the extension of unemployment benefits did seem to lengthen the time that a person remained jobless. It increased that time on average by about 7 percent.

That is, without the extension of unemployment benefits, people would have stayed unemployed 7 percent less. It did have a positive effect also on the unemployment rate, but rather small. The economists estimated that the extension of unemployment benefits resulted in an increase in the national unemployment rate by about .4 percentage points.”

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