Sixty percent of job creation in 2014 was caused by the expiration of unemployment benefits, according to a new working paper published by the National Bureau of Economic Research.
In late 2013, a standoff between Republicans and Democrats led to the abrupt expiration of long-term unemployment benefits. Democrats warned that the expiration would have disastrous ramifications, but Republicans had long argued that allowing Americans to collect unemployment benefits for an indefinite period of time provided a disincentive for them to work.
The new new working paper found that the expiration of benefits was responsible for the creation of over 1.8 million jobs. Nearly 1 million of those jobs were created by workers who would have otherwise stayed out of the labor force if unemployment benefits had been extended. Overall, almost 3 million jobs were created in 2014.
“The negative effects of unemployment benefit extensions on employment far outweighs the potential stimulative effects often ascribed to this policy,” the study said.
It found that “the dominant impact of the benefit cut on employment was not driven by a contraction in the labor force —unemployed dropping out of the labor force because they were no longer entitled to benefits — but instead by those previously not participating in the labor market deciding to enter the labor force.”
The study was coauthored by Marcus Hagedorn of the University of Oslo, Iourii Manovskii of the University of Pennsylvania and Kurt Mitman of Stockholm University.
The authors found that employment grew fastest in states that had high unemployment benefits before benefit extensions expired. This suggests that high unemployment benefits had been holding back job creation in these states, causing them to catch up quickly once benefits fell closer to those in low-benefit states.
The average duration of unemployment insurance fell suddenly from 53 weeks to 25 weeks in late December 2013. The federal Emergency Unemployment Compensation program had been extending the typical duration of unemployment benefits during the Great Recession.
The study gives ammo to conservatives who argue that welfare benefits for able-bodied adults encourage people to live off government handouts instead of seeking work. Only 62.7 percent of civilians are members of the labor force, the lowest rate since 1978. Participation was even lower prior to women joining the labor force at accelerated rates in the 1970s.
Labor force participation is down three percentage points since President Obama took office in 2009. It has fallen only 0.1 percentage points since unemployment benefits were cut in December 2013.