Longer Benefits Keep People Jobless? Maybe Not
By Mark Koba
Despite arguments to the contrary, giving unemployed Americans extended jobless benefits of up to 99 weeks didn't prevent them from taking jobs, according a new report.
Released last month through the Federal Reserve Bank of San Francisco, the study says that the extended benefits given from 2009 to 2012 to the unemployed increased the overall employment rate by only 0.04 percentage points, which the report says is small in comparison to the peak recession unemployment rate of 10 percent.
"There was some criticism that people on long-term unemployment benefits would not want to go back to work," said Henry Farber, a professor of economics at Princeton University and co-author of the report.
"But that's not true. We could find no real effect of the benefits from keeping people wanting to work," said Farber. "People are not staying on unemployment to avoid taking jobs."
Farber said his report looked at previous downturns in the economy when extended unemployment benefits were shorter—up to 79 weeks in early 2001-2002—than came out of the recession of 2007-2009. The findings for both periods were similar, he said.
"There was never much serious work done to look at this issue of extended benefits and the effect on the jobless rate," Farber said. "That's why we did this. We wanted to find out if there was a correlation and we didn't find one."
CNBC's Rick Santelli takes a closer look at Friday's employment numbers.
The current rate of unemployment is around 7.5 percent according to the Bureau of Labor Statistics, down from the 10 percent recessional peak in 2009.
Still, while the job picture is improving for some, the long-term unemployed aren't so lucky. That's because as the jobless rate improves, the federal government—which funds much of the unemployment benefit extensions—cuts back spending for benefits.
Congress has traditionally extended unemployment benefits in times of recession. In 2010 and 2011, benefits in some states reached 99 weeks of combined state and federal benefits—the highest extension on record.
But less than half of the 11.7 million unemployed in April received state or federal benefits, according to the Labor Department.
Any current extended benefits will continue for those receiving them, but they will not be renewed at the end of this year. And there will be no more extended benefits for those going on unemployment now, unless job losses mount to recession-era levels.
California and Nevada are among the states that have the highest duration of benefits, at 76 weeks, while Utah, Wyoming, South Dakota and Kansas are among the states with the lowest duration, at 40 weeks.
Not every one sees extensions as beneficial—despite any evidence to the contrary. Timothy Nash, an economics professor at Northwood University, said he believes extended benefits keep the unemployed from looking for work.
"There's a lot of debate about the impact of extensions but my gut feeling is that giving them hurts the job picture," said Nash. "If we look at countries like Sweden that had long term extensions and high unemployment, when they ended the extensions the jobless rate went down."
"I think some people need them," Nash went on to say. "People with certain skills that can use the extensions to take the time to find a job that's right for them. But without extensions, people feel a better sense of urgency that they have to find a job."
"Having these extensions, while they give some people a way to live, are not the best thing to do," Nash argued. "I think they add to the long-term unemployment situation instead of ending it."
Currently, there are some 4.4 million Americans listed as long-term unemployed—defined as those who have been out of work for 27 weeks or more., according to the BLS.
While that's better than the high of 6.7 million in April of 2010, it's still not enough of an improvement, said Chris Rhomberg, a sociology professor and labor expert at Fordham University.
"The long-term unemployed need help, and they're not getting it," Rhomberg argued. "You've got a situation where employers can reject people who have been out of work for a long time and they don't suffer any consequences."
"Businesses are not hiring and extensions are down. It's cruel," said Rhomberg.