More Evidence: Unemployment Benefits Hurt the Unemployed

In an earlier post, I highlighted a study from the Federal Reserve concluding that the extension of unemployment benefits through December 2013 may have prolonged unemployment. Several previous studies over the past decades have suggested this same effect of unemployment benefits.  To add to the body of evidence, a study just released from the House Committee on Ways and Means found that the federal Emergency Unemployment Compensation (EUC) program of 2008 was a primary contributor to the worst jobs recovery ever.  And it was the longest-running and most expensive:

  • The EUC program ran from 2008 to the end of 2013.
  • The unemployed received an average of 33 weeks of benefits – far longer than the 17 week average from the 1991 to 1994 EUC program.
  • Total benefits paid were $260 billion – far more than the second costliest that ran from 1991 to 1994 (at a cost of $46 billion).

Moreover, the longest and costliest EUC program seemed to do little to get people back to work.  The long-term unemployed (those out of work longer than 26 weeks) rate was double the rate it was during the worst recession of the 1970s.  It was not until 2012 that this rate began to fall, coincidentally at around the time the maximum duration of unemployment benefits was scaled back.  It was not until the EUC program came to an end in December 2013 that the short-term unemployment rate returned to its 2001 to 2007 average.  Meanwhile, the long-term rate is slowly but surely falling.

As with many government programs with good intentions, they often end up hurting people they intend to help.  Extended unemployment benefits are a prime example of this.




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