Dispelling Unemployment Myths

Via Arthur Delaney at HuffPo, a Federal Reserve Bank of San Francisco study of unemployment extension and UI benefits:

(R)eceiving UI is not a requirement in order for an individual to be counted as unemployed in official government statistics. The Bureau of Labor Statistics (BLS) official unemployment rate is based on responses to the Current Population Survey (CPS), a monthly survey of about 60,000 households conducted by the U.S. Census Bureau. Receipt of UI benefits plays no role in the identification of unemployment status in the survey. A person without a job is considered to be unemployed if he or she has actively looked for work in the previous four weeks, whether or not they are collecting UI benefits. In that respect, expansions of maximum UI receipt periods do not automatically increase measured unemployment, nor does exhaustion of benefits cause a person to cease being identified as unemployed. (Emphasis mine)

Get that? The unemployment rate has absolutely no connection to unemployment insurance payments. None. Nada. In fact, almost everything people “know” about unemployment rates and UI is totally wrong. Like so much else in the discourse of economy and politics in America, the culture at large is full of false notions that do real harm to any civic conversation about the way forward.

For instance, everyone “knows” that unemployment insurance makes recipients too lazy to find a new job. The only thing missing from that bit of common wisdom is actual data:

The similar increase in duration for the UI eligible and ineligible groups suggests that extended UI had only a limited impact on unemployment duration. As of the fourth quarter of 2009, the expected duration of unemployment had risen about 18.7 weeks for job losers and about 17.1 weeks for leavers and entrants, using the years 2006-2007 as a baseline. The differential increase of 1.6 weeks for job losers is the presumed impact of extended UI benefits on unemployment duration. It is straightforward to translate this increase in unemployment duration into an effect on the unemployment rate, based on their proportional relationship and adjusted for the share of job losers in overall unemployment, which was about 67% in December 2009. The implied increase in the unemployment rate is quite small, slightly less than 0.4 percentage point, indicating that without UI extensions, the measured unemployment rate would have been 9.6% in December 2009 rather than the observed 10.0%. (Emphasis mine)

Moreover, the unemployed workers most likely to take that extra time on the dole are not the poorest — those  living hand-to-mouth, paycheck to paycheck — but the one with the largest savings account when they lose their job, i.e. those who need UI the least.  The average UI check  is less than minimum wage, after all, so if you don’t have thousands or tens of thousands of dollars in the bank then it makes more sense to take 40 hours in fast food than wait to find a better opportunity. Also, there is a new class of long-term unemployed (.PDF):

Pew Center researchers also analyzed recent employment data to create a demographic portrait of the long-term unemployed. According to the Bureau of Labor Statistics (BLS), the median duration of unemployment stood at 25.5 weeks in June 2010, meaning half of the unemployed—the largest proportion since World War II—have been looking for work for six months or more. The previous high, in May 1983, was 12.3 weeks, less than half the level today. The Center’s demographic analysis finds that the median duration is highest among older workers, blue-collar workers and black workers. However, all workers, regardless of race or ethnicity, age, gender, nativity or occupation, have experienced a sharp increase in long-term unemployment during the recession. (Emphasis mine)

These are the wages of producer-worship. In the Darwinian outcome desired and delivered by free market theology, past inequalities — age discrimination, offshored manufacturing, and racial inequality — are being restored to their “proper” Dickensian levels. As Alvin Hall explained on NPR in July 2009, black Americans had only entered the middle class in force during the 1990s — and were now first to lose its status:

I think it’s a legacy of what happened in the ’50s and the ’60s. When we weren’t able to get jobs and get on the ladder early on, we were handicapped. So this is, in many ways, the first generation of African-Americans who’ve been able to buy their homes, get jobs, have access to the credit markets, but we didn’t have enough money to put down. We didn’t have – we didn’t understand how these markets actually work.

So when the economy starts to go down, we’re affected because we’re often living closest from paycheck to paycheck. Those statistics in that report were really devastating for certain groups. You saw that single homes headed by African-American males were down huge amounts. I think it was 9.3 percent in terms of income. Single females were also down. The only couple – the only group that remained relatively stable were married couples, but even they were down. (Emphasis mine)

As a nation, we are still as ignorant on these issues today as we were about credit default swaps and obligations three years ago.

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