Unemployment benefits and unemployment

Date posted: February 25, 2014

Unemployment benefits were recently reduced for many people, both in North Carolina and the country. Some say this will motivate those without jobs to look harder for work and eventually get hired. N.C. State University economist Mike Walden explains the economic evidence that suggests this happens.

“Well, Mary, this has become a very controversial issue, I think, as you know both here in North Carolina and in the nation, and there is fortunately some economic evidence on this. First point regarding job search, there is little economic evidence showing that reducing or eliminating unemployment benefits will cause people without jobs to really up their search time. Maybe modestly, but not enough to make a big impact. That is, what the evidence is simply saying is if you’re out of work, whether you are getting unemployment benefits or not, you’re going to be looking for a job.

“So there doesn’t appear to be a linkage there between reducing unemployment benefits and people searching more and therefore getting jobs. However, some new research suggests that the linkage may come not from the worker side, but from the employer side. That is to say that there is some evidence to suggest that the existence of unemployment benefits means that employers have to offer slightly higher wages in order to attract workers to their jobs, as compared to if unemployment benefits didn’t exist.

“Now we know in economics if the price of anything goes up – here we’re talking about labor – the use of it goes down, so there is some evidence to suggest that the existence of unemployment benefits causes employers to have to offer higher wages, therefore they use fewer workers. Therefore, if you reduce or eliminate unemployment benefits, the offered wage can come down a little bit and businesses will want to hire more workers. This is very tentative evidence. This is really based on one study, but in a very prestigious journal, so we have to look for confirmation, but it will give us another insight perhaps into how unemployment benefits impact the labor market.”

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