“There are many studies that indicate” that the longer people get unemployment insurance, “it provides some disincentive to work.”
Rand Paul on Jan. 5, 2014, in an interview on ABC’s “This Week With George Stephanopoulos”
"There are many studies that indicate" that the longer people get unemployment insurance, "it provides some disincentive to work." — Rand Paul on Jan. 5, 2014, in an interview on ABC's "This Week With George Stephanopoulos"
Just days before the U.S. Senate began consideration of a bill to renew expiring benefits for the long-term unemployed, Sen. Rand Paul, R-Ky., raised questions about how effective such a policy would be.
Appearing on the Jan. 5, 2014, edition of ABC’s “This Week,” Paul said he was concerned “that the longer you have it, that it provides some disincentive to work, and that there are many studies that indicate this. So, what I’ve been saying all along, we have to figure out how to create jobs and keep people from becoming long-term unemployed.”
We wanted to look at studies on unemployment insurance, and whether he’s correct that “there are many studies that indicate” that the longer people get unemployment insurance, “it provides some disincentive to work.”
Overall, we found that, in a literal sense, Paul’s recent comments are carefully crafted and largely correct: Such studies do indeed exist. However, there’s a fair amount of debate among economists about what that conclusion actually means for economic policymaking.
A look back at research
In a fact check we published in 2009, we noted some commonly cited papers that seemed to back up Paul’s statement, both co-authored in 1990 by Lawrence Katz, a Harvard economist who once worked in the Clinton administration, and fellow economist Bruce D. Meyer.
In one of these papers, published in the Journal of Public Economics, the authors looked at U.S. unemployment data from 1979 to 1983, and concluded that increasing unemployment insurance by six to 12 months could increase unemployment by four to five weeks, and a duration of 24 months could mean an increase of up to 16 weeks.
When we checked with an ideologically diverse group of economists for this article, they cited a number of other, more recent papers that found longer unemployment benefits tended to increase the duration of unemployment. For instance:
- In a May 2013 study, Henry Farber of Princeton and Robert Valletta of the Federal Reserve Board of San Francisco concluded that extended benefits in the aftermath of the Great Recession raised the average duration of unemployment by 7 percent and caused the unemployment rate to increase by 0.4 percentage points. The effect, they found, was especially strong among those unemployed for at least six months.
- In an October 2013 study, four co-authors concluded that "most of the persistent increase in unemployment during the Great Recession can be accounted for by the unprecedented extensions of unemployment benefit eligibility." They didn't think that longer benefit periods cut down on unemployed workers' efforts to search for jobs, though. Rather, they said, extended benefits tended to raise prevailing wages in the wider labor market, which made companies less likely to increase jobs on their payroll.
How to interpret findings
Gary Burtless, an economist at the Brookings Institution, said Paul is on “safe ground” with his claim. At the same time, Burtless emphasized that this “truth” is open to misinterpretation. We found at least three possible concerns:
- Not every unemployed person gets an unemployment check. Burtless says only about one of every three unemployed Americans gets a check — so whatever incentives are affecting unemployment-insurance beneficiaries could be outweighed by what's happening among the unemployed Americans who aren't receiving a check.
- Ending unemployment benefits reduces spending by the unemployed, which can lead to jobs being lost in the wider economy.
- The end of extended benefits may push the unemployed out of the labor force, rather than into a job. Receiving an unemployment check is usually contingent on looking for a job.
This poses a problem for tracking changes in the unemployment rate.
A recent post by James Pethokoukis of the conservative American Enterprise Institute analyzed data from North Carolina, where the GOP-led Legislature cut unemployment benefits, both in amount and duration.
“If you listen to Republicans,” he wrote, “it’s worked out pretty well. The state’s unemployment rate has dropped to 8.0 percent in October from 8.8 percent in June.” But while the number of unemployed residents plunged by 44,558 between June 2013 and October 2013, he found, the number of employed people increased by only 1,902.
In other words, 96 percent of the decrease in unemployed North Carolinians over that period simply left the labor market.
Our ruling
Paul said that “there are many studies that indicate” that the longer people get unemployment insurance, “it provides some disincentive to work.”
Paul is on solid ground about the existence of studies that support this point. But if Paul means to suggest that ending benefits actually increases employment, the support for that proposition is more mixed. In particular, there’s evidence that unemployed people may drop out of the labor market rather than find a job when they stop getting benefit checks. So Paul’s statement is accurate, but needs additional information. On balance, we rate Paul’s claim Mostly True.
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