Five myths about the unemployed
By Rick McGahey and Teresa Ghilarducci,
Rick McGahey and Teresa Ghilarducci are professors of economics at the Schwartz Center for Economic Policy Analysis at the New School in New York.
by Rick McGahey and Teresa Ghilarducci New numbers on Friday showed an estimated 146,000 jobs were added to the economy in November. But the unemployment rate remains stuck above 7.5 percent. Should Congress renew the emergency unemployment benefits program that is set to expire at the end of the year? Listening to the debate could result in more confusion than clarity, so let’s take a look at the misconceptions that often arise when the unemployed take center stage in Washington.
1. People who receive unemployment benefits are slow to search for work.
This oft-repeated statement might have a chance of being true if benefits were unduly generous. They aren’t. Weekly unemployment insurance payment averaged $300 in 2010 and 2011, federal statistics show.
It’s important to understand that unemployment benefits aren’t intended to replace a worker’s income. They provide support so financial hardship doesn’t interfere with a newly unemployed worker’s job search. Think of these payments not as handouts but as investments; warding off long-term unemployment saves money in the long run, or so the theory goes.
There’s evidence to back up the theory. According to a 2011 report by Congress’s Joint Economic Committee, people who receive unemployment benefits search harder and smarter for jobs than people who aren’t covered. They tend to make better job matches — that is, they find long-term positions that suit them and may pay more. With a better job match, people stay in their jobs longer, reducing turnover costs, layoffs and firings.
Many unemployed don’t even collect benefits when they are eligible. During the 2008-2009 recession, about half of people eligible for benefits never filed for them, according to a recent study.
Benefits also don’t last indefinitely. Each state has its own rules, but generally, most offer payments for up to 26 weeks. Workers must be able to prove that they earned enough and worked long enough to qualify for the maximum number of weeks, and lost their jobs through no fault of their own. Employers, rather than employees, pay the direct cost of unemployment insurance through a payroll tax.
Four years ago, Congress created a temporary program of emergency federal benefits that supplements the state benefits. The federal program has been extended several times. As a result, 24 states with the highest unemployment rates had paid up to 99 weeks of benefits. That was scaled back to 79 weeks in the last reauthorization. Five states have been offering 60 weeks, with the remainder falling in between.
The federal program is set to expire again at the end of the year. The last time Congress extended benefits, the unemployment rate increased by one-tenth of 1 percent, but not because people stopped looking for work. The opposite happened: The long-term unemployed continued looking for work so they could continue to qualify for benefits. The extension worked just as it was intended, inducing people to search for jobs.
2. Americans without jobs are hurt by immigrant labor.
In 2010, 30 House Republicans claimed a “direct link between unemployment and illegal immigration” in forming what they called the Reclaim American Jobs Caucus. But most economists disagree with that claim. They say immigrants boost the population and labor force, making it possible to establish more businesses and sell more goods and services, which in turn require more workers.
Daniel Griswold of the libertarian Cato Institute put it this way in a 2009 article: “The addition of low-skilled immigrants expands the size of the overall economy, creating higher-wage openings for managers, craftsmen, accountants, and the like.” In a dynamic economy, adding workers increases business activity.
3. Older workers are clinging to their jobs, hurting jobless younger Americans.
Many of us know an older professor or sales manager who won’t retire, and stories abound of newly minted PhDs and salespeople pounding the pavement, looking for work. But these anecdotal examples don’t prove the rule.
Young and old people aren’t substitutes — they are complements. The young bring new technical skills, while older workers provide judgment and management experience. Better still, high demand lifts all boats: The health-care sector, for example, is growing, and is both less likely to lay off older workers and more likely to hire younger ones.
What hurts young Americans is adult unemployment. The effect of chronic joblessness is generational: Children of the unemployed get less education and have more trouble finding jobs when they enter the workforce.
Getting rid of older workers who want to continue working isn’t a solution to joblessness. It guarantees a less diverse workforce and puts more stress on the nation’s retirement systems.
4. Onerous regulations cause jobs to disappear.
Anti-regulation advocates say rules always bring increased costs and sometimes drive economically shaky firms out of business. But sophisticated studies don’t support their claim.
To take one example: Pollution-abatement technologies often create demand for skilled labor and financial investment. Studies have found that when regulators required power plants to install scrubbers in their smokestacks, it created incentives for innovation that lowered the costs of operating the anti-pollution equipment.
Sure, tighter regulations on carbon emissions will affect the coal and oil industries, but those same rules bring jobs in wind and solar plants. Jobs aren’t necessarily destroyed — they are moved around.
5. Discouraged workers drop out of the labor force and never return.
A discouraged worker is someone who isn’t looking for work because he or she thinks no jobs are available. Like everyone else, when the economy improves, more of them look for jobs again. Their active job searches paradoxically can raise the unemployment rate for a while, even though the economy is improving. This is because discouraged workers are not considered part of the labor force, while those looking for jobs are counted as “unemployed.”
During periods of economic expansion, the number of discouraged workers falls, as it has over the past year. There were 979,000 discouraged workers in November, a drop of 10.7 percent from November 2011.
We are stuck in a slow recovery. Congress needs to extend emergency benefits again, but most important, it needs to enact more economic stimulus to help create jobs That will drive down our excessively high unemployment rates.