A Tale of Two Rands - Unemployment Benefits and Economic Illiteracy

Rand Paul - well-known foe of economic illiteracy - arguing that "extending unemployment benefits to two years does a disservice to the unemployed.":

Economic illiteracy condemns us to well-intentioned, big-hearted, but small-brained

responses to real problems.

Millions of people are out of work. We all have sympathy for those who are unemployed and I believe it is our moral obligation as a society to take care of those who cannot take care of themselves. Liberal pundits try to argue that Democrats are the only ones who care about the poor and unemployed, but the truth is, caring doesn't help unless it is linked to good policy...

According to a study by Rand Ghayad and William Dickens for the Federal Reserve Bank of Boston, employers will choose a less-skilled worker who has been unemployed for two months over a worker with more skills who has been unemployed for two years. So yes, extending unemployment benefits to two years does a disservice to the unemployed...conservatives who argue for shorter unemployment benefits actually have more concern for the worker than liberals who believe in no limits... (Bold added)

Rand Ghayad, the economist Paul cites, @The Atlantic, countering that based on his research "there's no reason to cut unemployment benefits:

Rand Paul says he cares about the unemployed."...

So why does he want to end unemployment benefits for people who have been out of work for 6 months or longer? Well, Paul cites my work on long-term unemployment as a justification—which surprised me, because it implies the opposite of what he says it does.


Now, we clearly have a long-term unemployment problem. The question is why. Paul says it's all about incentives. He thinks extending unemployment benefits does a "disservice" to the unemployed by encouraging them to stay unemployed for too long. And as a "big-hearted" member of a party that cares about the jobless, he wants to protect them from making such mistakes—by cutting their benefits, of course.

But Paul misreads my work to try to back up his argument. He says my paper, which shows that companies don't want to hire people who have been unemployed for more than 6 months, proves his point about long-term benefits (though he confuses it with another paper I authored with William Dickens). How does he figure this? Well, Paul thinks that "extending long-term benefits will only hurt the chances of the unemployed in the job market," because longer benefits will make them choose to stay unemployed longer—at which point firms won't hire them. But just because companies discriminate against the long-term unemployed doesn't mean long-term benefits are to blame. Paul might know that if he read beyond the first line of my paper's abstract.

Our long-term unemployment trap has nothing to do with long-term benefits. Indeed, in a previous paper for the Federal Reserve Bank of Boston, I decomposed job openings for people who are and aren't eligible for benefits. I found that up to half the increase in the unemployment rate relative to job openings was explained by job leavers, new entrants and re-entrants—people who can't collect UI benefits.

There is no evidence in my study, and almost no evidence elsewhere, that cutting unemployment insurance would increase employment much at all. There is some evidence that it would lower the unemployment rate, but only because people would give up looking for work, and no longer count as unemployed. So eliminating benefits for 4.1 million long-term unemployed people might hide some of the problems with our labor market. But it would do nothing to cure them. It would only cut off a vital lifeline for the long-term unemployed and their families.

According to Paul, “caring about the unemployed doesn’t help unless it is linked to good policy.” Of course. But good policy requires more than a cursory or selective reading of the research on unemployment. A careful reading reveals we can be both hard-headed and warm-hearted in this holiday season.