Monday, July 28, 2014

What have we learned from NC's cuts in unemployment benefits?

Not very much, argues Michigan economist Justin Wolfers in Sunday's NYT.  NC cut extended unemployment benefits a year ago and there is little evidence that this has helped promote employment.  The state unemployment rate is down but this is because more have given up looking for work versus more people accepting jobs.  If you compare trends in NC to adjacent states that did not make any cuts in benefits, it is very hard to discern any difference in either unemployment or employment.

My take: unemployment benefits in the US are relatively low compared to European countries, so low that they by themselves do not play a driving role in job search decisions.  But one must be careful to consider other forms of assistance -- especially food stamps and Medicaid.  Job search intensity depends heavily on two variables: (1) the perceived odds of finding a job and (2) the difference in income between working and not working.  If there are not many jobs around and unemployment benefits are not very large, then cutting the number of weeks of eligibility for benefits is not going to make a big difference in the job search behavior of the unemployed.  It is going to make a modest difference in their income and economic well being.

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