How Helpful Is Extending Unemployment Benefits?
Originally published on Wed December 5, 2012 12:30 pm
MICHEL MARTIN, HOST:
I'm Michel Martin and this is TELL ME MORE from NPR News. Coming up, for years now we've been talking about ways to close the achievement gap. Now some states are asking to set standards based on race. You can imagine why this is controversial. So we'll try to learn more about this in just a few minutes.
But, first, we've also been hearing a lot about the deadline coming up fast for that package of tax hikes and spending cuts aimed at cutting the deficit - the so-called deadline for the fiscal cliff. But there's also an important deadline coming up on unemployment benefits. If Congress doesn't reauthorize long-term emergency benefits by the end of the month, about two million Americans will stop getting checks.
We wanted to look at the pros and cons of this and also some new research that's challenging old assumptions about unemployment benefits. So we've called on two analysts for that. James Sherk is a senior policy analyst for the Heritage Foundation. That's a research organization, a think tank, if you will, conservative leaning. Also with us is Judy Conti. She is the Federal Advocacy Coordination for the National Employment Law Project, or NELP.
That's a non-profit that conducts research and advocacy on behalf of low wage and unemployed workers. Welcome to you both. Thank you for joining us.
JUDY CONTI: Thanks for inviting us.
JAMES SHERK: Thank you, Michel.
MARTIN: You know, unlike other fights in Washington I do want to point out that while you both have your differences there are some things that you agree on. So let's establish that, you know, upfront. For example, if I understand this properly, you both agree that the federal government should help states in some way extend unemployment benefits.
And the question is for how long and at what price. Do I have that right?
SHERK: Broadly, yes. See, in a down economy it's appropriate to extend the unemployment benefits. I think more than six months is certainly reasonable, given the state of the economy. The disagreement is that I think a year and a half worth of benefits is too high and starts to get counterproductive.
MARTIN: Is that the norm now? Is a year and a half about what the norm is across the country?
SHERK: The maximum length of benefits is 73 weeks right now, which is about a year and a half.
CONTI: But I would just...
CONTI: ...jump in for a second that there's only nine states in which people can receive as many as 73 benefits. Most...
MARTIN: Seventy-three weeks.
CONTI: Seventy-three weeks. Most receive far fewer than that.
MARTIN: So let's hear from each of you what you think the unemployment benefit extension should look like. And Judy Conti, maybe you should start.
CONTI: Sure. Well, last February at the end of a four-month process of extended and protracted and deep negotiations, Congress struck a deal where they took down some of the weeks of benefits that used to exist, up to 99 weeks, and re-jiggered the tiers of benefits. Where states getting over nine percent of unemployment are eligible for up to 73 weeks, but most states receiving far fewer.
Every state's entitled to 14 weeks, but then after that there are states that have over six percent get extra weeks and states over seven percent get extra weeks. We think that's an appropriate measure for many reasons. States over nine percent are still hurting very badly. That's a scary number.
So 73 weeks is not unusual. But beyond that we are still at pretty much the same point that we were in February, where the duration of unemployment is an average of 40 weeks and about 40 percent of the unemployed are the long-term unemployed.
MARTIN: James Sherk, what about you?
SHERK: Well, again, we've seen the unemployment rate has continued to fall since that deal was struck and I think it's appropriate to bring down the benefits. I think at the time that deal was put in place, that they obviously want to increase the benefits during the recession. But we think even at that point there'd be an increase disproportionately compared to the severity of the recession.
And so we think somewhere around 50 or 60 weeks' worth of benefits. So around a year. Maybe a bit more than a year.
MARTIN: And is that for everybody or is that for people...
SHERK: That would be...
MARTIN: Is that for only states where the unemployment rate is at a certain level?
MARTIN: Above nine percent?
SHERK: That would be for the, yeah, for the higher unemployment states above eight percent or above nine percent. If you're a state like North Dakota which has the enviable position of being in the middle of an oil boom, well, their unemployment rate is, what, three, four percent. And clearly, you shouldn't be giving that to them.
MARTIN: One of the things we wanted to talk about is that there is a recent study put out by a research institute at Rutgers University, that found that people receiving unemployment benefits were more likely to have been proactive about looking for work than those who did not receive benefits. They also reported more hours devoted to the job search and they were twice as likely to take on a job with lower pay than people who didn't receive benefits.
And one of the reasons this interests us, James Sherk, is that the conservative argument has been that unemployment benefits are a disincentive for people to go out and keep looking for work. That people are likely to be more picky, you know, to be, sort of, more colloquial. Doesn't this research fly in the face of that assumption?
SHERK: Well, the overwhelming consensus of economists and both the left and the right, you know, Alan Krueger, the president's chairman of his Council of Economic Advisors has come to this conclusion. So has Mark Zandi, who is a strong supporter of the unemployment insurance spending. But even he agrees that you have this effect, that you do increase the unemployment rate. Because even if people are searching for jobs they become more selective in the types of jobs they're willing to accept - quite understandably.
MARTIN: But how do you respond to this finding?
SHERK: But the - as a requirement of getting the benefits, of course, you have to search for work. But the question is what kind of work are you looking for? Imagine a laid off auto worker in Michigan. You know, GM employs about half as many workers as it did in 2005. Those jobs aren't coming back. And so you don't want to encourage someone to spend a year, or year and a half looking for a job that simply isn't going to recover.
The danger with unemployment benefits is they encourage workers to spend too much time looking for jobs that they'd prefer to find, and not enough time looking for the jobs that they're more likely to find. And in the end it can be counterproductive.
MARTIN: Hmm. Judy Conti, what's your response to this?
CONTI: Well, I would first of all point to the findings of the Heldrich Center study. That, you know, 59 percent of workers receiving unemployment accepted jobs at lower wages and lower benefits than they were previously receiving. You know, the fact is people do have a very strong sense of reality about the current jobs climate.
That the jobs that they lost probably are not the same kind of jobs that they're going to get back. But at the same time, unemployment insurance is designed - in one of its measures at least - to allow people to do the best they can to find suitable employment, because that's when the economy works best.
We want people working up to their maximum capacity in terms of their skills, their education and their experience. We don't want the person with an MBA working at McDonald's. Not that there's anything wrong with a good honest job at McDonald's, but there are different jobs for different people at different levels of experience and education.
MARTIN: Well, I'm just curious about what's your understanding or how you respond to this research and why do you think the findings are what they are? Because I think just on a gut level intuitively people might think, well, if I'm getting a little bit of money coming in then I can afford to hold out longer.
CONTI: But here's the thing.
MARTIN: And so let's just aside whether that's a good thing or a bad thing. But this finding suggests that, in fact, that people when they're receiving unemployment benefits are more proactive and they are more likely to - they will at some point, settle, if I can use that word. And so what's your take on that?
CONTI: And that's exactly the word. And here's why: People want to work. We as adults, we value our work. We often define ourselves by our work. It enables us to support ourselves, our families, our children. And it's important to people. And, you know, James and I have discussed this many times and we do this back and forth and we both agree, you know, people do want to get back to jobs.
And that's the overwhelming desire of everybody who's unemployed. So it doesn't surprise me that we find that people are willing to settle and willing to make compromises because the normative value of going to the job every day is so important.
MARTIN: I'm speaking with Judy Conti of the National Employment Law Project. That's who was speaking just now. Also with us, James Sherk of the Heritage Foundation. We are talking about the pros and cons of extending unemployment benefits. James Sherk, the Congressional Budget Office says if Congress extends unemployment benefits, then we'd have 300,000 more jobs by the end of next year.
Compared to doing nothing at all. They think the GDP would go up, as well. But CBO also says extending unemployment benefits will cost about $30 billion. So there's clearly a cost benefit analysis here, I think.
SHERK: Well, I take issue with the CBO's report. You know, I agree that there is a humanitarian case for extending benefits. I think it should be paid for by, you know, cutting spending on less effective or less important programs. But I think the argument has to be humanitarian. That it does have the economic consequences.
Economists across the political spectrum come to the same conclusion, because that's what the numbers show. And there's the economic, you know, cost. You trade those off against the humanitarian benefits.
MARTIN: So in your argument, this isn't really an economic analysis. It's more of like a social analysis. It's what's best for the country. It's not...
SHERK: Exactly. That it's - the problem with the CBO report is they made a number of simplifying assumptions. And they said this in the report. They assumed that there's no effect of the extended benefits on workers spending more time unemployed. And they assume that every dollar of unemployment spending gets immediately spent. Well, research casts doubt on both of those.
As I explained, the studies show that workers do spend more time unemployed. And also there is an effect - the workers with the benefits obviously spend down their savings at a slower rate. And so if you've got two spouses and one of them gets laid off, well, the other one, understandably, tends to work longer hours.
So I think it's appropriate to say, what are the humanitarian benefits and what are the economic costs and how do we (unintelligible) those apart? But it's not a free lunch. I mean it would be great if we could boost the economy but the $500 billion we've already spent on these benefits hasn't done much and I don't think spending another $30 billion more is going to, you know, help the economy any more than the first rounds of stimulus did.
MARTIN: Judy Conti, two questions for you. One is, do you buy Mr. Sherk's point that this is not an economic analysis, it's a social - it's a question of the social benefits? Number one. And number two, do you think this is really a bet on human behavior? Is this really an argument about what people really think about work?
CONTI: I would agree with James that the humanitarian reasons for continuing this program are overwhelmingly compelling. We differ on the economics of it. I mean, you have to realize that when somebody is getting federal unemployment benefits, they've already been out of work for over six months. These are people that have already tapped out their savings because unemployment only replaces 30 to 50 percent of your wages.
And on average, as I said, it's only $300 a week. So that's not a lot of money and these are families and individuals receiving UI. By the time they get to that six month mark, our experience is they have tapped out their savings. They have borrowed. They have cut to bare bones already, cashed in 401k's. And that's not behavior that we want to encourage. The rainy day might be very long.
Once you've already reached six months of unemployment, your odds, unfortunately, of staying unemployed really go up fairly extensively. So we need to protect every bit of public and private safety net that those individuals have.
But I do think the reason why time and time again for the last four years, this UI federal spending has continually garnered bipartisan support is that people do get how hard the times are. Two advocates from organizations as different as NELP and Heritage both agree that there are humanitarian reasons to continue this program.
And just on a very common sense and basic level, legislators, policymakers, advocates, all understand that.
SHERK: Well, you know, one thing I'd just like to add. One area of common agreement I think we could find is both sides want to help people get back to work. And I think there'd be room that both sides could agree - let's try more experimental programs for those, the unemployed and particularly the long-term unemployed, and see if we can, you know, find better ways.
Because the entire debate's been on the income support. What we really want is to get people off the income support. That's how we should be measuring success.
MARTIN: James Sherk is a senior policy analyst for the Heritage Foundation. That's a research group, a think tank that's conservative leaning. Judy Conti is the Federal Advocacy Coordinator for the National Employment Law Project. That's a non-profit group that conducts research and does advocacy on behalf of low wage and unemployed workers. And they were both kind enough to join us in our studios in Washington, D.C. Thank you both so much for joining us.
CONTI: Thank you, Michel. Transcript provided by NPR, Copyright NPR.