Study: Extended Unemployment Benefits Do Not Delay Return to Employment

Econintersect:  A study of the impact of extended unemployment benefits has found no measurable affect on the rate at which the unemployed return to work.  The implication is that availability of further unemployment benefits does not reduce percentage of the unemployed returning to work.  But there other correlations that do imply possible behavioral impacts for the extended benefits.

The study is discussed in a working paper by Henry S. Farber of Princeton University and Robert G. Valletta, Federal Reserve Bank of California.

Two graphics below show some of the experimental observations.  The first graph shows that the rates at which the unemployed return to employment are not significantly different for those receiving unemployment benefits and those that are not eligible.

Click on graph for larger image.

The authors determined that the slightly higher rate of return to employment for those receiving unemployment benefits was not statistically significant.

The next graph shows that the percentage leaving unemployed status by reason of leaving the labor force is significantly higher for those not eligible for unemployment benefits.

Click on graph for larger image.

It seems quite possible that unemployed who can receive further benefits but who either do not want to return to work or cannot find employment remain longer in the labor force just to collect the benefit. Here is an excerpt from the conclusion by Farber and Valletta:

We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have large first-order efficiency consequences. The major effect of extended benefits is redistributive, providing income to job losers who would have exited the labor force otherwise.

Econintersect draws the following conclusions about extended unemployment benefits (EUB):

• EUB do not decrease the number of employed.

• EUB do reduce rate of decline (or raise rate of increase) in the labor force.

• EUB maintain a higher number of unemployed than would be otherwise.

• EUB maintain a higher official unemployment rate than would be otherwise.

In all of these conclusions there must be concern about relationships between correlation and causation.  These are discussed in great detail by Farber and Valletta.

The full paper is available below.

Click wp2013-09 to view larger image at Scribd. — Upload by caitlynharvey

John Lounsbury

Source:

• Do Extended Unemployment Benefits Lengthen Unemployment Spells?  Evidence from Recent Cycles in the U.S. Labor Market (Henry S. Farber and Robert G. Valletta, Working Paper 2013-09, Federal Reserve Bank of San Fransisco, April 2013)