Friday, November 29, 2013

High School Drop-Out Debunks Economics Professor

* Chart below from the National Employment Law Project

Question: How can eliminating federally extended unemployment benefits for the long-term unemployed enable the short-term unemployed, those who are still receiving State jobless benefits, (and those who don't qualify for any jobless benefits at all), help any of the unemployed find jobs—or lower the unemployment rate—if there aren't enough jobs?

Answer: It can't. So, to say otherwise is total nonsense. If extended federal employment benefits are not reauthorized, only 1 out of 4 jobless Americans (those that are still counted in the U-3 unemployment rate) will be receiving jobless benefits next year. Millions of others (such as the 99ers) have already exhausted all their jobless benefits without ever finding work again, and have had no income at all for years. Meaning, many of them now qualify for food stamps and Medicaid.

Federal Extended Unemployment Insurance Benefits in 2013

An aspiring Noble Prize candidate, Casey B. Mulligan, with a Ph.D. in Economics, wrote an opinion piece for the New York Times making his very flawed case for not renewing federal extended unemployment benefits next year (thereby immediately denying 1.3 million Americans of any income at all).

He gives us two very laughable reasons why: 1) because ObamaCare® kicks in and will pay people more (by using government subsidies) than unemployment benefits would, and 2) unemployment benefits keep people from finding jobs (Read the notable excerpts from his Libertarian/Ayn Rand propaganda piece below):

"If the emergency program [federal extended unemployment benefits] continues while the new health care assistance comes on line, the incentives of workers and employers to create and retain jobs will take a big hit...The assistance lost from the emergency program will be offset by the health assistance coming online...[Unemployment benefits] keep the labor market depressed by permitting people to remain unemployed longer and making layoffs more common...Even if the emergency program is allowed to expire on Jan. 1, it will be replaced by an even larger program — the Affordable Care Act — assisting the unemployed and others...As soon as they are fired, quit, retire or otherwise leave the payroll, they will be eligible for monthly assistance to pay for their health insurance premiums and out-of-pocket expenses...the new assistance [healthcare subsidies] will average about $110 a week, tax free (unlike unemployment benefits, which are taxable). Moreover, the premium assistance is not limited to 26 weeks; it can last for decades...Now is the time for Emergency Unemployment Compensation to expire to make way for new assistance programs."

For one thing, when I needed unemployment benefits, it was to pay for my rent and food, something that ObamaCare® (even with government subsidies) can not do. And secondly, the old argument about jobless benefits keeping people from looking for work has already been thoroughly debunked on many fronts, by many people much smarter than me. So it greatly behooves me to understand why Casey B. Mulligan at the New York Times is beating this long-dead horse.

I'll begin debunking his trashy economic theories by first citing some arguments of those who actually agree with him.

According to three researchers at VOX, extended unemployment benefits "encourages job seekers to prolong their search." But Mark Thoma, a Professor of Economics at the University of Oregon, had responded, "One thing that seems to be missing here is that one benefit of unemployment insurance is that, it allows workers to find better matches for their skills." And I would also add, "Yes, maybe in a NORMAL downturn in a business cycle, both statements may be true to some extent (depending on an individual's personal circumstances), but the Great Recession was anything but NORMAL."

There is this report from the San Francisco Federal Reserve that concludes:

"Although economists have shown that extended availability of UI benefits will increase unemployment duration, the effect in the latest downturn appears quite small compared with other determinants of the unemployment rate. Our analyses suggest that extended UI benefits account for about 0.4 percentage point of the nearly 6 percentage point increase in the national unemployment rate over the past few years. It is not surprising that the disincentive effects of UI would loom small in the midst of the most severe labor market downturn since the Great Depression."

But even so, the authors at VOX research continued to argue, "Some observers argue that US unemployment would have returned much faster to normal levels if the US had not expanded the duration of benefit payments from 26 to 99 weeks." VOX never mentions who these supposed "observers" are, but in the last paragraph of their "report/study" VOX also writes:

"Interestingly, recent studies conclude that the US benefit extension programs of the Great Recession increased unemployment significantly, but by less than half a percentage point (36-page study: Rothstein 2011, Farber and Valletta 2013). This evidence suggests that the unemployment insurance extensions in the US were less costly than previously thought."

In the study by the San Francisco Federal Reserve (SFFR) that VOX cited, it says:

"Interestingly, our estimates show a marginally significant (though small) increase in the exit rate to employment due to extended benefits for the UI ineligible individuals in the 2007-2012 period. This may reflect a spillover from those eligible for UI to those not eligible for UI. If more generous extended benefits lead to longer durations of unemployment for those eligible, this may increase opportunities for those who are not eligible."

The Fed study goes on to say, "The unprecedented extension of unemployment insurance (UI) benefits up to 99 weeks from 2009 through mid-2012 appears to have lengthened duration by a small to moderate amount (Rothstein 2011, Daly et al. 2012). This effect has diminished as UI recipients have exhausted their maximum benefits and Congress has scaled back the program. On the other hand, some degree of elevated long-term unemployment may be here to stay. Recent research shows evidence of a modest increase in U.S. structural unemployment since the recession (see, for example, Daly et al. 2012, Elsby et al. 2011). However, this research also suggests that the primary explanation for historically high long-term unemployment is the persistent weakness in overall economic activity and demand for labor."

Just as Fed study had concluded: "We estimate that extended UI increased the overall unemployment rate by only about 0.4 percentage points in the recent episode, which is small in comparison with the peak unemployment rate of 10 percent."

Research by Christopher Erceg and Andrew Levin is providing solid evidence that the decline in the labor force participation rate since 2007 has been due to cyclical factors (the recession and slow recovery) rather than to demographic factors. In the latest version of their paper they show us how large the US unemployment rate would be without this abnormal decline in the labor force – – and this chart from their most recent paper shows that the decline in labor force participation rate is far greater than the demographics would suggest. (Meaning, not because old people are retiring, etc.)

Because the official U-3 unemployment rate does not count the people who dropped out of the labor force, it does not give a good reading of the state of the labor market. The unemployment rate would be much higher without this large decline in labor force participation. People become "discouraged workers" after giving up looking for non-existent or imaginary jobs. Using the broader measurement of unemployment, the U-6 or the U-7 rate, the unemployment rate over doubles –– and this means there are more than 6 people unemployed for every job opening.

The Bureau of Labor Statistics reports the "official" unemployment rate as 7.3% today, but the U-6 rate is 13.8% --- but that doesn't include all those who "dropped out of the labor force". There is also an Alt U-6 rate (that includes many more "discourage workers") which is currently at 15.2%. The Bureau of Labor Statistics used to report a U-7 rate, which is at 16.2%. And there's also Shadow Stats, showing the unemployment rate as 23%.

It's not raining jobs. There are more people out of work today than there were in October 2009, when the post-recession unemployment rate had peaked --- when it was then-reported at 10.2% with 15.7 million Americans out of work. Even though the "official" unemployment rate is lower today than is was in 2009, there are more people unemployed today than there were then. (And there are almost twice as many people unemployed today than there were at the height of the Great Depression – – not because of federal extended unemployment benefits, but because there are not enough jobs.)

Currently, there are about 19.93 million unemployed Americans who want a full-time job today. The Bureau of Labor Statistics reports that there are 3.3 million jobs openings for 11.3 million unemployed Americans. Since the Great Recession started, long-term joblessness is up 213 percent. The labor market is currently over-saturated, and one reason is because too many jobs have been offshored over the past three decades, and so, jobs are no longer as abundant as they once were in the "good old days" –– when anyone who really wanted a job, could eventually find one.

Another reason is lack of "churn". The Wall Street Journal reported that not enough people were quitting their jobs, and that a humming economy usually means a high rate of churn in the work force –– where an employee voluntarily leaves one job for another in search of a higher paying job and new challenges. This is supposed to be because, ultimately, one worker's exit from a job will open the way for someone else to jump on the ladder. Older workers (who weren't laid off) are working longer to recoup losses in their home equity and pension plans, thereby contributing to reduced churn. And many people are fearful of losing their in-house seniority, protecting them from layoffs, but at the same time, keeping them for risking a voluntary move to quit one job in search of "greener pastures" because of the terribly weak job market.

In an exposé by The Atlantic, they found that employers intentionally screen out the long-term unemployed, even if their résumé has the same work experience as someone unemployed for less than six months. So how could receiving federal extended unemployment benefits (for those out of work 6 months) keep employers from hiring these people, or keep these jobless people from finding jobs?

And the current rate of REAL unemployment (meaning the number of those who are long-term unemployed) will keep growing for some time to come –– and one reason is because job creation is barely, if at all, keeping up with population growth. According to the NCES, a research arm of the U.S. Education Department, the U.S. had approximately 18 million high school graduates from 2008 to 2013 (averaging over 3 million a year). In a 14-page report last February by Rutgers - John J. Heldrich Center for Workforce Development, they noted a whopping 44% of high school students were unemployed — college grads are now taking jobs that high school dropouts had once hoped for.

But the long-term unemployed "discouraged workers" (who are referred to as "long-term" after 27 weeks), after one year, they are usually no longer included in the jobless numbers being reported by the Bureau of Labor Statistics. As a matter-of-fact, going forward, we could have permanently high unemployment for years to come, according to Brad DeLong, a Professor of Economics at U.C. Berkeley.

A research paper by Rand Ghayad and William Dickens (Federal Reserve Bank of Boston) showed that the long-term unemployed are struggling to find work, no matter how many job openings there are. In an interview for the Wall Street Journal Ghayad says, "Once you are long-term unemployed, nobody calls you back." A U.S. Government Accountability Office study identified employer reluctance to hire older workers as a key challenge that older workers face in finding reemployment.

In an article at the Urban Institute titled "27 Weeks and Counting" they write, "As of June 2013, a staggering 36.7% of the unemployed have been out of work for longer than six months." (Download the study: Who are the Long-Term Unemployed in PDF)

According to research last year by the National Bureau of Economic Research, the chance of being called for a job interview falls by 45% as unemployment lengthens from one to eight months. And according to the most recent research by the Federal Reserve Bank of San Francisco, by the time he or she has been out of work for six months, the chance for reemployment drops to 10%.

According to economists Dean Baker and Kevin Hassett in a New York Times article called The Human Disaster of Unemployment (which was also referred to at a Congressional hearing last year for older workers) a worker between the ages 50 and 61, and who had been unemployed for 17 months or longer, only had about a 9% chance of ever finding a new job.

And the longer one was unemployed, the lower their chances for ever finding work again. A U.S. Government Accountability Office study identified employer reluctance to hire older workers as a key challenge that older workers face in finding reemployment. The GAO also found that the number of workers age 55 and over experiencing long-term unemployment has grown substantially since the recession began.

Extended federal unemployment benefits had nothing to do with keeping these people out of the labor market. Many who were laid off early on in the recession (2007/2008) had no chance whatsoever of being rehired, or while the layoffs had continued up until mid-2009; yet after the first 6 months, they were already classified as "long-term unemployed". Now many, if not most, have been jobless 4 or 5 years or longer (but were also too young to retire), and might only have a 0% chance of ever being re-employed again.

Since 2008, about 1.4 million Americans went on Social Security disability (SSDI) and about million more became old enough to qualify for a reduced Social Security retirement at the age 62 — leaving millions more in economic Limbo with no jobs and no means of supporting themselves — and that may help account for the sharp raise in the suicide rate:

"The rate of suicide in the United States rose sharply during the first few years since the start of the recession, a new analysis has found. In the report, researchers found that the rate between 2008 and 2010 increased four times faster than it did in the eight years before the recession. Every rise of 1 percent in unemployment was accompanied by an increase in the suicide rate of roughly 1 percent, the study found. The analysis found that the link between unemployment and suicide was about the same in all regions of the country."

Does Casey B. Mulligan seriously believe people would rather take their own lives rather than find jobs before their unemployment benefits ran out?

In an excellent New York Times article titled Caught in a Revolving Door of Unemployment, Annie Lowrey notes that long-term joblessness is now one of the defining realities of the American work force. She described long-term unemployment as a trap that becomes more and more difficult to escape with each passing month. Economists are unclear about whether faster growth will improve the situation. She writes, "Some fear that it may already be too late to prevent long-term joblessness from permanently scarring the American work force and broader economy."

She also points out that "a newly jobless worker has about a 20 to 30 percent chance of finding a new job. By the time he or she has been out of work for six months, though, the chance drops to one in 10, according to the research by the Federal Reserve Bank of San Francisco."

Just recently, at Bill Moyers' website: The Long-Term Unemployment Trap Could Get Worse:

"Many experts are saying that further austerity would bring more bad news for the economy. Chad Stone, chief economist at the Center for Budget and Policy Priorities — a think tank focused on policies to help low- and moderate-income Americans — writes, the “mainstream explanation for why unemployment is so high is that businesses still don’t have enough sales to justify hiring enough workers to restore normal levels of employment.” Failing to renew the Emergency Unemployment Compensation (EUC) program, which has been extended a number of times since 2008 to help those struggling during the Great Recession, will have the opposite effect of what is needed — Americans out-of-work for long periods will have even less to spend, which will further blunt the already-pretty-blunt recovery."

As an aside: Pope Francis Denounced Ronald Reagan's and the GOP's "Trickle Down" Economics:

We have created a “disposable” culture which is now spreading. It is no longer simply about exploitation and oppression, but something new. Exclusion ultimately has to do with what it means to be a part of the society in which we live; those excluded are no longer society’s underside or its fringes or its disenfranchised — they are no longer even a part of it. The excluded are not the “exploited” but the outcast, the “leftovers”.

A very powerful statement, and it may be the best description yet of the 99ers, those in the U.S. who have been laid off and out of work for going on 5 years now after using up all 99 weeks of federal extended unemployment benefits — usually older Americans over 50 years old. Like the Pope suggests, they were used and abused for 30 or 40 years before being tossed away like used toilet paper. Now they're being slammed by the Republicans (and others in the media) for being lazy — or drug addicts.

As another aside: Earlier this year, in a study by Jesse Rothstein (University of California, Berkeley and NBER) he found that there was no indication that expiration of unemployment benefits causes increases of Social Security awards either (debunking earlier claims that the Wall Street Journal had made, but then later retracted.)

Casey B. Mulligan's article at the New York makes him appear politically biased and ideological — and economically foolish as well — so he should have his immature diatribe at the New York Times either retracted, or at the every least, severely amended. According to the Economic Policy Institute, we could actually lose an additional 310,000 jobs by NOT renewing federal extended unemployment benefits for 1.3 million unemployed Americans.

This 58-year-old very-long-term unemployed high school drop-out, who is surviving on nothing but the kindness of a friend and food stamps, feels he has put the Professor Casey B. Mulligan to shame (if he has any). So I'll assume that Mulligan probably also thought that cutting my food stamps this month was also economically sound.

"Supervalu is the third-largest food retailing company in the United States (after Kroger and Safeway) and ranks #75 on the Fortune 500 list. A Goldman Sachs analyst has recently downgraded the stock of Supervalu (from HOLD to SELL) citing federal cuts to food stamps, so their stock price had tumbled." (See my post, Food Stamps: Profits from Poor at Risk at the Economic Populist)

I wrote on this same topic 2 years ago and earlier this year --- but some people want to keep beating this same old tired drum. So in my "study" I will conclude: Unemployment insurance benefits do not cause unemployment; just like disability benefits do not cause people to become disabled; just like having health insurance does not cause someone to become sick; and just like having auto insurance does not cause people to wreck their cars. And just like having a Ph.D. does not make a person a genius either. Sometimes common sense helps.

* As to my own personal experience with federal extended unemployment benefits, they literally saved my life (scroll half-way down this post to read my story.)

by Bud Meyers, from the School of Hard Knocks

* At a rally at the Federal Building in NYC, the long-term unemployed 99ers were asking, "Where are the jobs?"

Remember the 99ers!


"Changing Assistance for the Unemployed" by Casey B. Mulligan
http://economix.blogs.nytimes.com/2013/11/27/changing-assistance-for-the-unemployed/

Casey B. Mulligan - Profile at the Cato Institute
http://www.cato-unbound.org/contributors/casey-b-mulligan

Mulligan Economics Research Papers and Class Materials
http://home.uchicago.edu/~cbm4/

Contact Casey B. Mulligan
c-mulligan@uchicago.edu

6 comments:

  1. UPDATE -- From the Dallas Fed:

    "Jobs are 1.1 percent below the level when the Great Recession began, compared with the average increase for the previous six business cycles...Economic growth following the Great Recession has been a long slog. Moreover, the sluggish comeback marks the continuation of a trend in which the nation has shown less resiliency coming out of recession than it did in the more distant past."

    http://www.dallasfed.org/assets/documents/banking/firm/fi/fi1304.pdf

    ReplyDelete
  2. You would think that after 5 years, people in the media would eventually get this right --- NOT!!!!!

    In this article at the New York Times, "For Long-Term Jobless, a Stubborn Trend"
    http://www.nytimes.com/2013/11/30/business/economy/for-long-term-jobless-a-stubborn-trend.html

    Regarding job openings, they say "The latest figures show the ratio has fallen back to 2.9" --- Wrong: Using the broader measure of unemployment (the U-6 or U-7 rate), there are still over 6 jobless Americans for every listed job opening.

    Regarding the reason for long-term unemployment, they say "But it appears that many of the people who have been unemployed the longest simply lack the skills to get the available jobs." --- Wrong: It's only because employers assume they lack skills. This assumption already been debunked.

    Regarding the long-term unemployment rate, they say "The short-term unemployment rate is back to the levels that prevailed for most of the period before the recession. But the long-term rate, while it is falling, remains higher than it was at any time before the recession." Wrong: The long-term unemployment rate is only falling in the U-3 rate. Then they move into the U-6 category after about a year, until they are no longer counted anymore. That is why the labor force participation rate is at a 30 year low --- because of "discouraged workers".

    ReplyDelete
  3. The Wall Street Journal is just as guilty for misinformation....

    Recently at this link....
    http://online.wsj.com/news/articles/SB10001424052702304017204579223712459418626

    They say, "The number of people filing for new unemployment benefits fell for the sixth time in seven weeks, more evidence the labor market is steadily improving." Wrong: Falling unemployment claims has little to do with the unemployment rate. It might just mean more people exhausted their UI benefits. But when referring to initial (new) claims, it only means fewer people were being fired or laid off, not that more job were being created for the already unemployed.

    ReplyDelete
  4. China’s competitive advantage as a low-cost manufacturing center is nearly over after years of rapid wage inflation and the appreciation of the Yuan. This has shown up in our increasing trade deficit with China where we are importing less volume of goods at increased cost.

    It seems that our manufacturers are already accelerating the re-shoring of jobs back home. I think the only reason this has not happened faster is that we can't just shut down existing, functioning operations and our investments in plants and other fixed assets will take time to be written down. I just hope that this trend will not be hijacked by new free trade agreements like the TPP which can open up new countries where we can off-shore our jobs to cheap labor.

    http://www.thenewamerican.com/economy/markets/item/16616-thanks-to-america-s-fracking-boom-and-skilled-labor-force-the-re-shoring-of-jobs-is-accelerating

    ReplyDelete
  5. No --- those jobs will just move to other low-wage countries, not back to the US --- Fracking primarily enables gas and oil companies to export more of America's natural resources overseas for greater profits, not to lower our domestic energy prices. Yes, TPP would be another disaster --- NAFTA on steroids.

    Cambodia’s low wages lure manufacturers away from China, other countries
    http://articles.washingtonpost.com/2013-01-07/world/36208078_1_factory-wages-foreign-direct-investment-thai-border

    The 3 Countries Stealing China's Business
    http://www.fool.com/investing/general/2013/06/15/the-3-countries-stealing-chinas-business.aspx

    Corporations Are Moving Out Of China To Even Lower Wage Countries
    http://archives.politicususa.com/2011/05/17/china-move-out.html

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  6. Dean Baker Reminds Us

    "The United States is still down almost 9 million jobs from its trend path. We are losing close to $1 trillion a year in potential output, with cumulative losses to date approaching $5 trillion. Many older workers lost their jobs with little hope of ever finding another one, even though they are ill-prepared for retirement. Young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt. These numbers correspond to millions of dreams ruined."

    http://www.theguardian.com/commentisfree/2013/oct/28/alan-greenspan-housing-market-crisis

    ReplyDelete