THE MISLEADING CLAIM: The job market has improved significantly in 2014 due to Obamas successful policies. The Reality: The reason the job market saw improvement in 2014 compared to other post-recession years is because our nations unemployment insurance program dramatically changed in 2014. Allow us to explain. Late December 2013, the extended federal unemployment insurance program was not renewed. That meant, starting in 2014, people could no longer claim unemployment insurance extensions for the abnormally long period of 24 months, as they had been doing during the rest of the post-recession era. To be clear, unemployment checks were still available for a few months, just not TWO YEARS. Per a recent study released by the Federal Reserve Bank of New York, once that change occurred, “employers were more willing to create jobs and workers were more willing to take them. The number of new monthly job openings increased by “20 percent, to 4.7 million by June.” [a] The rate of new job openings “soared to its pre-recession peak of 3.3%.” [a] As Faith Karahan, one of the authors of the Fed study concluded, “the expiration of the extended benefits increased the willingness of firms to hire, leading to the large increase in job openings.” Per the study, “employers put off hiring when generous unemployment benefits were available because they felt that workers were unwilling to take low-paying jobs as long as they had checks coming in the mail under the benefits program. ...Increases in unemployment insurance generosity put upward pressure on wages since it becomes more expensive to lure people into work. [a] Per economist Scott Sumner, 2014 was a sort of natural test of the hypothesis that the extended unemployment insurance program led to higher unemployment,” and among several variables outlined, he concludes that extended unemployment benefits raised the unemployment rate prior to 2014. [b] Per Forbes, “economists from across the political spectrum agree that extended unemployment insurance benefits impose perverse incentives that reduce employment; it is only the magnitude of the distortion where there is disagreement.” [c] This is backed up by previous studies as well. A similar study from the Federal Reserve Bank of Philadelphia entitled, Effects of Extended Unemployment Insurance Benefits: Evidence from the Monthly CPS examined data from 2009-2010. It concluded, “experiments suggest that extended benefits in recent years have raised male workers’ unemployment rate by 1.2 percentage points.” [d] A similar conclusion was found in an earlier study from the 90s, called Unemployment Insurance And Unemployment Spells. That study concluded, Higher UI benefits are found to have a strong negative effect on the probability of leaving unemployment. [e] As you can see, it was the decrease in available UI benefits that caused the job market to improve in 2014, as it terminated the perverse incentive to willingly not work for years. Its important to note, however, this was NOT the doing of President Obama or the Democrat party. In April (2014), the Senate passed a bill... that would have extended benefits for the long-term unemployed through the end of May and included retroactive payments (going all the way back to January of 2014). But the Republican-controlled House ignored the measure, with House Speaker John Boehner refusing to bring the bill up for a vote. [f] The Republicans forced an end to that policy. Therefore, there should be no confusion about this; the GOP ended peoples ability to accept 2 years of easy money, and as the empirical evidence strongly suggests, THIS caused the improvement in the job market, NOT President Obama. ---------------------- Sources: [a] washingtontimes/…/fed-end-of-unemployment-…/… [b] econlog.econlib.org/archiv…/…/12/so_hows_the_eco.html [c] forbes/sites/patrickgleason/2014/04/07/ui-nc/ [d] https://phil.frb.org/…/publications/w…/2010/wp10-35R.pdf [e] nber.org/papers/w2546.pdf [f] m.motherjones/…/congress-unemployment-insurance-…
Posted on: Sun, 04 Jan 2015 18:40:27 +0000
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