How Both Parties Win the Unemployment Debate by Screwing the Unemployed

As long-term unemployed are left out in the cold, Democrats and Republicans will both find political silver linings in Congress’ failure to extend long-term benefits.

NORTH MIAMI, FL - JANUARY 07: A job seeker looks at a list of jobs available as the Senate votes on extending the Emergency Unemployment Compensation (EUC) program.
National Journal
Alex Seitz-Wald
Jan. 17, 2014, midnight

Long-term un­em­ploy­ment in­sur­ance is all but dead. Con­gress will take up the is­sue again after it re­turns from the re­cess that be­gins Fri­day, but even if a bill passes the Sen­ate (where it failed twice on Tues­day), it’s prob­ably dead on ar­rival in the Re­pub­lic­an-con­trolled House.

How could Con­gress fail to ad­dress per­haps the most im­port­ant eco­nom­ic is­sue of the day? Demo­crats rightly blame Re­pub­lic­ans. All but a hand­ful of GOP­ers op­pose re­new­ing the ex­ten­ded be­ne­fits — which were cre­ated as an emer­gency meas­ure dur­ing the depth of the re­ces­sion — on the grounds that the pro­gram boosts the de­fi­cit and breeds a cul­ture of de­pend­ency.

But both parties stand to gain something polit­ic­ally if the be­ne­fits are not re­stored (they ex­pired in late Decem­ber), even as people who have been out of work for a long time get screwed.

Here’s why: Cut­ting off the be­ne­fits will al­most cer­tainly cause the un­em­ploy­ment rate to drop. When it does, Re­pub­lic­ans will feel ideo­lo­gic­ally vin­dic­ated, while Demo­crats will have some good eco­nom­ic news to sell to voters ahead of the 2014 elec­tion.

There are two forces that push down the un­em­ploy­ment rate when be­ne­fits ex­pire, and while eco­nom­ists aren’t ex­actly sure how much re­spons­ib­il­ity to as­sign to either, the out­come is the same either way.

The first ex­plan­a­tion is that people col­lect­ing be­ne­fits get off the dole and find jobs. “You do a dis­ser­vice to these work­ers. When you al­low people to be on un­em­ploy­ment in­sur­ance for 99 weeks, you’re caus­ing them to be­come part of this per­petu­al un­em­ployed group,” Sen. Rand Paul said on Fox News in early Decem­ber. The idea is that people col­lect­ing be­ne­fits who have been hold­ing out for a bet­ter job will now take whatever they can get.

The more likely ex­plan­a­tion is the al­tern­at­ive, which as­sumes that many of the people who lose their be­ne­fits will get dis­cour­aged and give up on find­ing a job. Be­cause the gov­ern­ment counts people as un­em­ployed only if they are cur­rently look­ing for work, there will sud­denly be a lot few­er un­em­ployed people, at least in the eyes of the of­fi­cial stat­ist­ics.

Re­mem­ber, these people have been out of work for a very long time, and nu­mer­ous stud­ies sug­gest that many of them will simply not be able to find jobs, no mat­ter how hard they try, thanks to em­ploy­er dis­crim­in­a­tion and poor job pro­spects. Many re­cip­i­ents may have kept up their job search — and thus con­tin­ued to get coun­ted as “un­em­ployed” — only be­cause they’re re­quired to do so in or­der to col­lect un­em­ploy­ment-in­sur­ance be­ne­fits.

“Both of these forces bring down the un­em­ploy­ment rate, but for very dif­fer­ent reas­ons,” said Aaron Chat­terji, who teaches at Duke Uni­versity’s busi­ness school and pre­vi­ously served as a seni­or eco­nom­ist in the White House Coun­cil of Eco­nom­ic Ad­visers.

Mi­chael Fer­oli, the chief U.S. eco­nom­ist for JP­Mor­gan Chase, es­tim­ated that the “lapsing of [ex­ten­ded un­em­ploy­ment com­pens­a­tion] could lower the un­em­ploy­ment rate by per­haps 0.25%-0.50%-pt, with much of the ef­fect com­ing through re­duced labor force par­ti­cip­a­tion, rather than in­creased em­ploy­ment.” Gold­man Sachs says the drop could be as high as 0.8 per­cent­age points if all 1.3 mil­lion Amer­ic­ans who are ex­pec­ted to lose their be­ne­fits give up look­ing for a new job.

Chat­terji’s state provides a nat­ur­al ex­per­i­ment. Back in Ju­ly, North Car­o­lina’s GOP-con­trolled le­gis­lature cut the max­im­um length of long-term un­em­ploy­ment be­ne­fits, and re­duced the size of weekly checks, pres­aging what will hap­pen na­tion­ally if Con­gress con­tin­ues to sit on its hands. Since then, the un­em­ploy­ment rate in North Car­o­lina has fallen by about 1.5 per­cent­age points to a five-year low.

At the same time, North Car­o­lina saw its biggest drop ever in work­force par­ti­cip­a­tion, sug­gest­ing that most of the ex­plan­a­tion for the drop is that people just quit look­ing for work, as Evan Soltas ex­plained for Bloomberg. It’s im­port­ant to de­term­ine why cut­ting be­ne­fits pushed the rate down, but there’s little doubt that it did.

And here’s how politi­cians from both parties can win polit­ic­ally, even as the un­em­ployed lose.

For Re­pub­lic­ans, the drop in the un­em­ploy­ment rate gets touted as proof of their anti-safety net world­view. “More people got off un­em­ploy­ment and either got jobs or moved back to where they were go­ing or came from,” North Car­o­lina Gov. Pat Mc­Crory said last week­end when asked why his state’s un­em­ploy­ment rate dropped.

That’s no help to Tar Heel Demo­crats, who have been re­leg­ated to the gov­ern­ing minor­ity. But na­tion­ally, if the trend fol­lows, then the White House and con­gres­sion­al Demo­crats can point to the fall­ing un­em­ploy­ment rate as evid­ence that their shep­herd­ing of the eco­nom­ic re­cov­ery for the past five years has been suc­cess­ful. And the drop in the rate would hap­pen just as can­did­ates are gear­ing up for the elec­tion.

So far, Demo­crats don’t seem to be tak­ing that bait. They des­per­ately want to pass an ex­ten­sion of un­em­ploy­ment be­ne­fits for more im­port­ant reas­ons (you know, help­ing people). But if and when that ef­fort fails, there’s at least a polit­ic­al sil­ver lin­ing for them wait­ing — as long as they’re will­ing to pa­per over the fact that the work­force par­ti­cip­a­tion rate has fallen dan­ger­ously along with the un­em­ploy­ment rate.

Mean­while, the long-term un­em­ployed are worse off than ever.

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