The New Year Will Get Off to an Awful Start

A blog about business and economics.
Dec. 30 2013 10:05 AM

The New Year Will Get Off to an Awful Start

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No help for the unemployed here.

Photo by Karen Bleier/AFP/Getty Images

This time last year D.C.-based writers were having a surprisingly busy workweek as Congress hustled to strike a last-minute deal around the "fiscal cliff." The negotiations were primarily focused on taxes, but the final deal included an extension of unemployment insurance benefits for the long-term unemployed. This year, the year-end deal got done much faster and much cleaner—but Republicans wouldn't agree to another UI extension, and Democrats didn't want to go to the mattresses over it.

The result is a morally scandalous situation that will start playing out in the new year. People who've been out of work for a long time obviously really need some money to get by, and they're going to lose their money.

And they're not going to make up for it by getting jobs.

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One way we know they won't is from the experience of North Carolina, which for reasons of state politics did a UI cutoff for the long-term unemployed this year. Evan Soltas summarized the results, and you can read Reihan Salam on the same thing if you want more right-wing street cred, but suffice it to say there was no "jobs boom" where lazy bums suddenly got off their asses and found readily available work. It turns out that being unemployed is really humiliating and depressing, and people who've been unemployed for a long time are people who genuinely can't find any jobs. Cut them off from their benefits, and they end up scrounging at soup kitchens—they just can't get work.

A controlled experiment by Rand Ghayad helps explain their plight. Basically employers need to use some heuristics to decide whom to hire, and one heuristic they use is massive discrimination against the long-term unemployed. There's a great inquiry to be had as to whether this is a pure irrational bias or some kind of satisficing form of rational statistical discrimination, but the point is that the people who are about to lose their UI benefits are people whom nobody will hire.

At a time when interest rates continue to be super low and the budget deficit is modest and falling rapidly, cutting them off from benefits is simply inhumane. It's cruel and pointless, and it's probably economically counterproductive too since it'll mean a loss in demand for businesses that the long-term jobless might otherwise patronize. But mostly it's cruel.

Now what's true is that given the nature of the predicament the long-term jobless are in, unemployment insurance has really become an inappropriate way to support them. The idea of UI is to tide people over until they can find a job. The problem with the long-term unemployed at this point is they aren't going to be able to find jobs. But rather than cutting them off from money, the challenge calls for more vigorous efforts to get them back into work through some mix of direct government hiring and relocation programs to help connect them with the regional pockets of labor shortage that are emerging.

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