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  • Are Jobless Benefits Leading to Higher Unemployment?

    The Wall Street Journal - 07/01/2013

    The latest entry in the debate comes from Rand Ghayad, a graduate student atNortheastern University who has already won attention for his work studying the plight of the long-term unemployed.

    In an earlier paper, Mr. Ghayad and a colleague looked at the well-known relationship between unemployment and job openings. Ordinarily, the two indicators move together, in a predictable pattern: More job openings means less unemployment, and vice versa. But recently, the relationship has changed: Unemployment is higher than it should be given the number of openings.

    Mr. Ghayad and his co-author found that the change in the relationship was driven entirely by the long-term unemployed. The number of short-term job seekers was more or less what economists would expect given the number of job postings. But there were far more long-term unemployed than the historical relationship would predict. One possible explanation: Extended benefits were leading job-seekers not to look as hard for work.

    But in a new paper published by the Boston Fed, Mr. Ghayad calls that explanation into question. He does so by breaking the unemployed into two groups: those who lost their jobs, and those who quit voluntarily, are entering the workforce for the first time or are re-entering the workforce after time away (to raise a child, for example).

    The logic is simple: In general, only people who lose their jobs qualify for unemployment benefits. So if extended benefits are leading to long-term unemployment, then the two groups should behave differently. Instead, both groups show more or less the same trend. There are indeed more job-losers than there should be based on historical relationships, but only because there are more unemployed people in general; the relationship between job openings and unemployment shows a similar shift for both groups.

    That’s good news for defenders of unemployment benefits, but it may be bad news for the economy. In his paper, Mr. Ghayad concludes that his research “suggests the increase in the unemployment rate relative to job openings will persist when unemployment benefit programs expire.”

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