Are Extended Jobless Benefits Boosting the Unemployment Rate?

This theory seems possible, until you actually look at the numbers

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Here's an interesting theory: maybe the unemployment rate is so stubbornly high because not enough jobless Americans are exiting the workforce as normally would have. Why might they be sticking around for longer than usual? Perhaps they're collecting extended unemployment benefits for as long as they can before exiting the workforce for good. After all, if the government puts money on the table, you might as well take it. Could this theory help to explain the high unemployment rate?

Before considering the validity of this idea, its origins should be noted. This isn't some wacky theory thought up by a little-known blogger with too much time on his hands: it was suggested by Federal Reserve economists. Most of the attention paid to the monetary policy committee's August meeting minutes stemmed from its consideration of other stimulus strategies, but they also included the following note:

Participants also discussed the labor force participation rate, and it was noted that extended unemployment benefits could be increasing the measured unemployment rate by encouraging some workers to remain in the labor force longer than they otherwise would have.

The way in which this might work has already been explained. The theoretical logic is clear enough, but does observation of the U.S. labor market back up this possibility?

The Cases That Matter: Retirement or Homemaking

If we're worrying about the unemployment rate being inflated by those who should have left the labor force, then we need to determine which sorts of people this includes. For example, what if a recent 24-year-old college grad was laid off a year ago and moved back home? Perhaps he's discouraged and can go without income for a while with no overhead, but continues to look for work occasionally so he can collect unemployment benefits. Should he be considered unemployed? I'd say yes: he does want a job and needs to find one eventually. His employment situation is a direct result of a poor labor market, so Fed economists should worry about his joblessness. At some point, he must work.

A fair criterion to determine who shouldn't be counted as unemployed would be those who have been laid off but would not re-enter the workforce at this time, even if a good job was available. There are really only two major groups of people who would fit this criterion that may be collecting unemployment after having been laid off. One group would consist of older Americans who consider themselves retired, but continue to collect unemployment because they can. The other group would consist of men or women who have decided to become full-time househusbands or housewives permanently rather than work again.

These should really be the only two groups that the Fed economists are worried about. After all, if someone wants a job but can't find one, then it's hard to understand why anyone would complain about considering them unemployed -- unless some weird circumstance prevents them from looking for a job, which also probably already precludes them from being counted as part of the labor force (e.g. illness).

Homemakers

It's hard to imagine that the number of men or women who became permanent homemakers after being laid off, but continue to collect unemployment, is very large. For starters, in the U.S., social trends generally result in far more women taking on this role than men. And the statistics show that men have fared much worse when it comes to layoffs, mostly because some male-dominated professions like construction and manufacturing were some of the hardest-hit. Moreover, fields that favor women, like healthcare and education, have been more resilient and continue to hire workers. As a result, women are more likely to be enticed back to work than men.

Turning to statistics, of the 13.9 million Americans unemployed in July, just 2.0 million were married women, while 2.8 million were married men. Those are relatively small portions of the unemployed population, as the vast majority appears to be unmarried. Unless independently wealthy, few single adults have the option of becoming a permanent homemaker. Domestic partners could come into play here as well, but such arrangements often lack the stability necessary to result in someone permanently exiting the workforce to become a homemaker.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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