1.7 Trillion Weeks of Unemployment Benefits

In the past four years Federal and state unemployment insurance programs paid about 1.7 trillion weeks  (32.7 million years) of unemployment insurance benefits to jobless workers as they continued their job search.  32.7 million years is a remarkably long time period that is usually reserved for events measured on the geologic time scale (South America fully detached from Antarctica about 32.7 million years ago during the Oligocene Epoch).  Unemployment benefits were paid to an average of nearly 8.2 million workers per week, every week, for the past four years.  The unemployment insurance rolls have been quite high for an unusually long time because of the depth of the recession, the weakness of the recovery and because Congress and the President extended unemployment benefits so that job losers could collect benefits for up to 99 weeks. 

More generous benefits undoubtedly provided greater financial support for job losers and their families, but also encouraged jobless workers to be more selective in their job search and remain unemployed longer.  Many Democrats and Keynesian economists view the unemployment insurance program, food stamps and other social safety net programs as economic stimulus.  On the other hand conservatives, such as Casey Mulligan of the University of Chicago, argue that the work disincentives of the unemployment insurance program and other safety net and entitlement programs increased the depth and length of the recession.

One way to quantify the opportunity cost of providing unemployment insurance benefits to approximately 8.2 million jobless workers per week is to consider how many employees could have been hired using those resources.  Although unemployment insurance benefits vary by state, the typical weekly benefit is about one half of a worker’s previous weekly wage.  This means that the cost of insuring 8.2 million jobless workers per week is about the same as the wage and salary costs of employing 4.1 million workers per week. 

Many economists have complained that the government stimulus didn’t include enough investment in infrastructure or purchases of goods and services.  Our representatives in the Federal government chose to pay people to search for work rather than employ them directly for public works projects.  But how many roads, bridges, schools and other valuable public sector investments could have been completed instead of paying for 1.7 trillion weeks of job search?  Instead of paying half of the typical weekly salaries of 8.2 million people looking for work each week, we could have instead:

• Paid the salaries of every worker employed in the construction and repair of streets, highways and bridges for the next century
• Paid the salaries of every elementary and secondary school teacher in the U.S. for four years.
• Paid the salaries of all workers in the motor vehicle (and parts) industry for two decades.

Democrats and Keynesian economists lament that state and local government employment has fallen 1.8% over the past five years instead of the 3.9% growth from 2002 to 2007.  The relatively small decrease in state and local government payrolls pales in comparison to the cost of jobless benefits over the past four years.  The money paid to unemployed workers per year over the past four years is equal to about 1/5 of the annual salaries of all state and local government employees combined.

Hoover Dam, The Grand Coulee Dam, LaGuardia Airport, The Lincoln Tunnel and many other public works projects were built during the Great Depression when many of the workers on these projects had few other job options.  The economic approach to dealing with the 2008-2009 recession has been quite different.  In 2013 we will reach 2 trillion weeks of unemployment benefits paid since the recession began.  When the history of this recession and recovery is written it will be clear that we did not use this time of excess capacity and idle workers to re-build and re-tool our infrastructure.  We will not be able to point to the dams, bridges, highways, schools and hospitals that were built during the recovery even though about two million construction workers lost their jobs after the residential real estate market collapsed and many of them are still out of work.  Instead the approach of this Administration and this Congress has been to pay people who lost their jobs to look for work, even though many of the jobs that were lost in the recession are no longer there.

The High Take-Up Rate for Unemployment Insurance Signals that Hiring is Weak

The U.S. Department of Labor released the 23^rd weekly report of new unemployment insurance claims for 2012.  About 374,000 workers per week, on average, applied for first-time unemployment insurance in 2012.  Bureau of Labor Statistics data also indicate that about 392,000 workers lost their jobs each week due to layoffs in the first quarter of 2012.  These are the workers for whom the unemployment insurance system can provide some relief.  Unfortunately the economy continues to plod along so that 95% of job losers file for unemployment benefits.  This is a clear indication that even experienced workers are struggling to find work.

Five years ago, when the labor market was relatively healthy, about 404,000 workers were laid off each week, but only 314,000 applied for unemployment benefits.  Many of the remaining 90,000 job losers either found a job immediately or expected to find one soon.  In a healthy labor market, as we had in 2007, over 20% of job losers didn’t bother to apply for jobless benefits because they did not expect to be out of work for long.

If today’s labor market was as healthy as in 2007, new jobless claims would be 305,000 per week – almost 70,000 less than the average for 2012.  The high “take-up” rate (95%) for the unemployment insurance system is just one indication of the problem that jobless workers face.  New college or high school graduates are typically ineligible for unemployment benefits but are also struggling to find work.  In addition, there are millions of discouraged workers who have stopped searching for work because of the weak economy.

Conventional wisdom suggests that when new jobless claims fall below 400,000 per week the unemployment rate will decline.  That is no longer true because hiring and new business formation remain sluggish and there are millions of discouraged workers that will re-enter the labor force at the first signs of a recovery in hiring.  The unemployment rate will not fall below 8% until there is a substantial increase in hiring.  A leading indicator for a hiring rebound is when new jobless claims stay well below 350,000 per week for a sustained period.

New Jobless Claims Continue to Signal Labor Market Problems

There have been 15 weeks of new jobless claims reports released in 2012.  The average number of new unemployment insurance claims has been 392,200 per week (not seasonally adjusted).  Between 2004 and 2006, a period of modest annual employment growth of 1.7% or 2.24 million per year, the average number of new jobless claims was 328,800 per week.  Weekly jobless claims are substantially (19%) higher than they were in 2004-2006, when the economy was creating about 187,000 net new jobs per month.

New jobless claims are filed by people who have lost their jobs, so it is difficult to imagine a scenario in which new jobless claims could be much higher than they are now, given the current state of the labor market.  Data from the BLS JOLTS survey indicate that in the six months between September 2011 and February 2012, about 420,600 workers were laid off (or discharged) from their job each week, on average.  This means that in 2012 new jobless claims have been about 93.2% of layoffs per week, on average.  Between 2004 and 2006 new jobless claims were about 78% of layoffs, on average, per week.  We know that the labor market is struggling when almost everyone who loses their job files for unemployment insurance.