Remember Those Dire Warnings About Extended Benefits?

by John Hood

At the end of 2013, the federal government’s latest extension of unemployment-insurance benefits expired. President Obama, virtually all Democrats in Congress, some Republicans in Congress, and (unfortunately) some conservative policy wonks warned that failing to cobble together another UI extension for 2014 would result in a mass exodus of discouraged workers from the civilian labor force. Most Republicans and conservatives, however, argued that extended benefits should be at best a temporary measure during the depths of a recession. Otherwise, the policy tends to discourage the jobless from accepting positions that may not be ideal in the short run but are better than remaining unemployed (for individual workers in the long run and for the economy as a whole). This effect, in turn, can result in lower job creation given that some employers find it impossible to bring current UI recipients back into employment at wages that are justified by the output the workers generate.

We’re now six months into an American labor market without extended UI benefits. What does it look like? Not much like the scenarios predicted by the Left.

According to the just-released household survey by the Bureau of Labor Statistics, the standard U-3 unemployment rate fell from 6.7 percent in December to 6.1 percent in June. Contrary to the assertion that such a trend would reflect only discouraged workers ending their job search, not real gains in job acceptance and job creation, the country’s civilian labor force rose half a percentage point, the number of employed Americans rose 1.1 percent, and the number of unemployed Americans dropped 8.5 percent — all better rates of performance than the country experienced during the first six months of 2013. The nation’s employment-population ratio went up, not down. Switching to the establishment survey, the economy has added about 1.4 million payroll jobs so far in 2014, a rate of job creation higher than during the first six months of 2013.

In short, ending the extended-benefits program has coincided with stronger labor-market performance, not increases in worker disengagement from the labor force — which is particularly impressive given the economic head wind they call Obamacare. As a North Carolinian, I’m not at all surprised by these developments. Our state was the only one in the country that exited the extended-benefits program six months earlier, in July 2013. Check the Wall Street Journal on Saturday for a piece I wrote explaining what happened next in the Tar Heel State.

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