Blame the Economy, Not the Long-Term Jobless &
the Unemployment System
House Republicans Hold “Return to Work” Hearing
(April 2003)

Despite record job loses reported over the last several months, Chairman Wally Herger of the House Subcommittee on Human Resources has scheduled a hearing for April 10th to shift the debate to whether workers are to blame for their unemployment. Specifically, the hearing will focus on whether empirical research supports the Chairman’s statement that “numerous studies suggest unemployment benefits extend unemployment and delay returns to work, which is troubling.”  (“Herger Announces Hearing on Unemployment Benefits and ‘Returns to Work,’” Hearing Advisory dated April 3, 2003).  As described below, the Chairman’s initiative is seriously misguided especially when applied to workers unemployed as a result of the recession.

• The realities of today’s struggling labor market determine how long workers remain unemployed, not their unemployment benefits.  There are 2.6 million fewer private sector payroll jobs since employment peaked, making this recession the most sustained downturn since the Great Depression.  Meanwhile, 21.4% of the unemployed have been jobless for more than six months, cutting across nearly all industries including professional and college-educated workers.  Even Federal Reserve chairman Alan Greenspan has conceded that the lack of jobs not laziness is the cause of today’s lingering unemployment: “When you get into a period when jobs are falling, then the arguments people make about creating incentives not to work are no long valid and hence, I have always argued that in periods like this the economic restraints on the unemployment insurance system almost surely ought to be eased to recognize the fact that people are unemployed because they couldn’t get a job not because they don’t feel like working.”  Joint Economic Committee Hearing, Nov. 13, 2002.
  
• The long-term jobless experience severe economic hardship, which contradicts claims that workers are not seeking work and prefer to collect unemployment benefits.   In the 1990s, 40% of workers who collected unemployment benefits fell into poverty after collecting extended benefits. Two-thirds of those who collected extended benefits and later found work reported a drop in earnings compared to their prior jobs, and almost half reported a decrease in the hours that they worked.  Part-time work more than tripled for these workers (23% were employed in part-time jobs after collecting extended benefits).  Walter Corson, et al., Emergency Unemployment Compensation: The 1990s Experience (January 1999).
  
• The research describing the “disincentive” effect of unemployment benefits has serious limitations, especially during recessions.  During recessions when the job market is most limited, it is especially inappropriate to conclude that workers are more inclined to collect unemployment rather than accept suitable work.  Thus, the authors of the report evaluating the 1990s extension program concluded that their findings documenting the severe economic hardship workers experienced while collecting unemployment benefits “do not seem consistent with a substantial disincentive effect that led individuals to remain unemployed in order to collect EUC.”  [Emphasis added].  Id. at p. 131.
  
• The research results have been significantly overstated by some critics of the unemployment system.    According to a review of empirical research, an additional 13 weeks of unemployment benefits may add about one week of unemployment for those workers who approach the end of their unemployment spell. Contrary to what some critics have argued, that is not the same thing as saying these workers are not seeking work as aggressively as other workers.  In fact, the research does not measure how hard workers are seeking work each week later in their unemployment spells.  Critics point to the fact that a high proportion of workers exit unemployment at the end of their UI spell to conclude that workers wait until the end of their UI benefits to look for work.  Taken differently, this fact is evidence that UI helps workers find a job that replaces as much as their prior earnings as possible.  According to data available from at least one state (Oregon), workers who leave work early on tend to accept jobs paying slightly above what they previously earned, while those who are still unemployed as they approach the end of their 26 weeks of unemployment tend to take jobs substantially below what they previously earned.  Woodbury and Rubin, “Duration of Benefits” in Unemployment Insurance in the United States (1997, Wandner and O’Leary ed.).  Whitelaw, Ziliak and McMullan, Analysis of ‘A Better Program for the Unemployed’ (1997).