Ditch the Long-Term Unemployment Benefits - Get These People Jobs

Political  Calculations
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Posted: Aug 01, 2014 12:01 AM
Ditch the Long-Term Unemployment Benefits - Get These People Jobs

On 28 December 2013, approximately 74,000 Illinoisans who had been unemployed for more than 26 weeks but less than 73 weeks lost their unemployment insurance benefits when the federal government's emergency extended unemployment benefits program expired. Paying an average benefit of $320 per week, up to a maximum of $413 per week, Democratic Party politicians and interest groups vowed to do whatever it took to get their unemployment benefits back.

By spring, Illinois' elected representatives in the U.S. Congress used their influence to get the Illinois Department of Economic Security (IDES) to exploit a unique set of data it collects, which gave it the ability to track how these individuals fared in the state's labor market in the months following when they lost their eligibility to continue receiving the state's politically-coveted and federally-funded extended unemployment insurance benefits. In April 2014, the IDES reported that in January 2014, 10,000 of the 74,000 Illinoisans who had lost their unemployment benefits had gotten jobs.

One month later, the IDES reported that 12,700 of the 74,000 Illinoisans who had stopped receiving their extended unemployment checks when the federal government's program expired were working as of February 2014.

That was the last time the Illinois Department of Economic Security made that data public. Earlier this month, we contacted IDES to inquire if they would be publishing any additional data regarding the work status of these 74,000 individuals. Illinois DES spokesman Greg Rivara indicated that they had provided the data in response to requests from elected officials to support the legislative effort in Washington D.C. to reestablish federal funding for the program. Since that effort had stalled out, IDES' analysts had moved on to other work. Rivara also indicated that there were no plans to resume reporting Illinois' unique data on how well this segment of the state's jobless population was faring in the job market beyond what it had already provided.

But we have a really good idea of what happened next. We've already determined that the net number of marginal jobs created in Illinois surged after February 2014.

Illinois: Net Change in Total Employed and Non-Farm Payroll Since December 2013, December 2013 through June 2014

Let's next apply the bits of information that IDES has already provided about how well the state's population of 74,000 long-term unemployed have fared since their eligibility to continue receiving the state's unemployment benefits expired.

Since these individuals were outside of the employed portion of Illinois' civilian labor force, it is very unlikely that these individuals displaced people who were already employed. That would mean then that the members of this large population of individuals, who were suddenly seeking to replace the income they had previously been collecting in the form of weekly extended unemployment benefits, would most likely be filling the newly created marginal jobs in the state. The next chart shows how that played out for this population using the data we know for January and February 2014, then projects the range of most likely outcomes for this group with respect to those newly generated marginal jobs over the next four months.

Illinois: Net Change in Total Employed and Non-Farm Payroll Since December 2013, December 2013 through June 2014

In both January and February 2014, we find that approximately 25.1% of the new increase in jobs that were generated in the state were claimed by Illinoisans who had previously been receiving extended unemployment benefits. We then apply that percentage of total new marginal jobs created as being representative of what the minimum number of hires would be each month from March through June 2014 for this unique segment of Illinois' civilian labor force.

But here, we should note that most individuals who start a job search from scratch will typically find work some three to six months after they get serious about it and start seeking employment in earnest. And with an average weekly income of $320, any full time job paying at least Illinois' minimum wage of $8.25 per hour would be capable of replacing the unemployment benefits they had been receiving for as long as the previous 17 months. And of course, jobs that pay higher wages could do the same for them with fewer hours worked.

We've therefore also indicated on the chart a potential likely trajectory that would represent the pace of re-employment for the 74,000 Illinoisans who became ineligible to receive any additional unemployment insurance benefits after 28 December 2013. What we clearly observe is that the net increase in the number of jobs in the margin of Illinois' economy is more than sufficient to provide for the employment of these 74,000 individuals.

So in addition to a general decline in the state of Illinois' economy in 2014, which we observe in the decline of non-farm payroll jobs after December 2013, in which we also observe an increase in the total employment figure as these displaced workers start working in marginal jobs, we see that the loss of extended unemployment benefits for 74,000 Illinoisans could have also contributed to the large boost of employment in hiring to fill newly created marginal jobs in the state during the first six months of 2014.

Ultimately, this outcome is why Illinois' elected representatives in the U.S. Congress will likely no longer be using their influence to get the Illinois Department of Economic Security to resume its accounting of the fate of those 74,000 Illinoisans whose extended unemployment benefits ran out after 28 December 2013 anytime soon. And you can bet that the political activists who mindlessly cite the IDES' data in their calls to crank up the federal government's extended unemployment benefits program will be happy to never see that data updated beyond February 2014 as well.

For such activists, that's just part of the modus operandi that is part and parcel with their kind of rent seeking.

And that's a shame for serious analysts, because the kind of economic data that can provide really useful insights in how people respond to incentives in their environment is far more rare than it should be.

Update: The Wall Street Journal reports on a study that confirms what we found!

Also, Kevin Erdmann wonders if the federal government's Extended Unemployment Insurance (EUI) program for the long-term unemployed hurt these displaced, marginal workers far more than it actually helped them:

I've been fairly clear that I don't think such long term EUI was a wise policy. I'm not sure we did these workers any favors by having such generous EUI policy. If the main point of this policy was to lessen the incentive for them to accept sub-optimal work opportunities in the months following their loss of work, it seems that what we have done is to create about a million and a half workers, who, at the end of the labor contraction, still are in a position where they will need to accept sub-optimal work opportunities, but now have to try to acquire those opportunities with a big red flag on their resumes. So, they are likely, after having missed two years or more of potential productive work time, to be facing even worse opportunities than they had initially. In trying to save workers from uncomfortable, but manageable, outcomes, we may have subtly pushed them into desperate outcomes with no obvious, systematic solution.

Data Sources

U.S. Bureau of Labor Statistics. States and selected areas: Employment status of the civilian noninstitutional population, January 1976 to date, seasonally adjusted. [Text Document]. Accessed 25 July 2014.

U.S. Bureau of Labor Statistics. Economy at a Glance: Illinois. [HTML Document]. Accessed 25 July 2014.

References

Abraham, Katharine, G., Haltiwanger, John C., Sandusky, Kristin and Spletzer, James. Exploring Differences in Employment Between Household and establishment Data. Journal of Labor Economics, Vol. 31, No. 2, Pt 2, pp. S129-S172. [PDF Document]. http://www.jstor.org/stable/10.1086/669062. 11 June 2013.

U.S. Bureau of Labor Statistics. Employment Situation Technical Note. [HTML Document]. Last Modified 3 July 2014. Accessed 12 July 2014.