Extended unemployment benefits delayed recovery

There is a record number of unfilled jobs, the unemployment rate is low, yet many available workers haven't bothered to join or rejoin the labor force. Why? A new study indicates that extended unemployment benefits (EUB) kept millions of Americans out of work for months. Some governors ended EUB payments sooner than did others.

“While both Republican- and Democrat-led states saw high job openings and slowed employment growth, with one exception, only Republican governors implemented the policy change before funding lapsed. This politically driven policy variation provides a source of identification to assess the jobs effect of terminating EUB”

An estimated 3.4 million Americans would have started working sooner if extended unemployment benefits had been cut off sooner. What can we learn from this? First, all forms of insurance promote irresponsibility. Unemployment insurance discourages work. People desire financial security, but slower job growth has real economic costs. What other disincentives keep labor force participation lower than previously seen? Second, work and production affect the cost of living. Inflation exists when too much money chases after too few goods. If several million Americans had begun working and producing more goods months earlier, then inflation would have been lower. Lower inflation and more labor force participation over the past year or so may have prevented, or delayed, a recession that seems to have started in January of this year.

Some politicians signal that they care about people by providing a “generous” social safety net. “Generous” social safety nets have the consequence, perhaps unintended, of reducing productivity and real wealth. This is not a matter of who does or does not care about people. This is a matter of seeing the difference between a temporary and costly sense of security and real economic progress.