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Marketplace Morning Report

The ‘freeloader argument’ and jobless benefits

David Gura Jan 7, 2014
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The push to re-instate benefits for the long-term unemployed took a step forward today in the U.S. Senate, when a filibuster-proof 60 Senators agreed to advance the plan. It’s just one of several steps that would be required to bring those benefits back after they expired late last month.

So the debate will continue, and one of the arguments you’ll be sure to hear in that debate is that this three-month extension would take away the incentive to look for jobs.

On “This Week With George Stephanopoulos” last weekend, Sen. Rand Paul (R-Ky.) claimed that, when it comes to unemployment, the longer you have it, “it does provide some disincentive to work.”

According to Mark Killingsworth, a professor of economics at Rutgers University, “in a limited sense that’s true, but it’s not huge.”

“Most people would rather get a job than sit on unemployment benefits,” he says.

Another labor economist, Henry Farber, who teaches at Princeton University, says the evidence “is pretty clear.”

“It suggests that the extended unemployment insurance benefits that we have had in the Great Recession and its aftermath have not appreciably reduced the job-finding rate,” he says.

Having access to those benefits, Farber says, might extend the period of time someone is unemployed, but just by a couple of days.

“The view that somehow, by providing people with extended benefits,” he says, “they are just living the-fat-and happy life and don’t need to look for work and are not finding jobs, does not seem to be borne out in any data that I have seen.”

What the benefits have done, Farber notes, is keep out-of-work Americans from leaving the workforce altogether. Killingsworth says what is missing from the U.S. economy right now is demand – both for goods and services, and workers.

“If we don’t do anything much to demand, then everybody is going to be scurrying around looking for jobs that don’t exist,” Killingsworth says.

Labor economists have studied unemployment benefits for decades, but for the most part, they have done that when we have had what they call a “normal economy.” And that is not how they describe the economy today.

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