By Jeff Bell
Along with low gas prices, a rise in job growth has been the bright spot in the U.S. economy recently. More than one million jobs were added in the previous three months alone. The last time that happened was in 1997. And 2014 saw the most jobs added since 1999.
Typically such surges in employment accompany a recovery from a brutal recession or come in the midst of a robust expansion (like the 1980s or late '90s). But this one features neither. Economic growth has been paltry for the last six years, hovering around two percent. Instead of happening for cyclical reasons, this recent job boom has to do with a policy change that President Obama and other Democrats fought hard to prevent: the end of extended unemployment benefits.
At the height of the unemployment crisis in late 2008 and early '09, Congress dramatically expanded the length of jobless benefits. States, like New Jersey, that had unemployment rates above 8.5 percent were able to pay 99 weeks of benefits - nearly quadruple the 26 weeks typically available in normal times. The duration fell as the jobless rate inched down, but before the additional federal support was cut off at the end of 2013, most states were offering around a year's worth of benefits. (New Jersey offered 63 weeks.) At an average of $300 a week, this equaled about 133 percent of the federal poverty level - nothing to live on comfortably, but nothing to sneeze at either.
This 66-month federal program to extend unemployment insurance was a historical anomaly. None of the previous three recessions had programs lasting even half that duration. The 1981-82 recession, comparable in length and severity to the 2007-09 downturn, featured 30 months of federal support. But Obama and congressional Democrats argued that the stubbornly high jobless rate, still above 7.5 percent halfway into 2013, made federal assistance critical for giving people more time to look for a job.
But what if extended benefits had the opposite effect? What if they kept people out of the workforce instead of helping them get back in it?
Economist John Mueller of the Ethics and Public Policy Center and others have long argued that extending the duration of unemployment insurance, while undoubtedly motivated by compassion, does more harm than good by freezing the labor market. At 99 or even 52 weeks of benefits, some people who are unemployed become less motivated to undergo the arduous searching-and-matching process of finding work in tough times. This delay in job-seeking leads many employers to pare back their openings and hours - and ultimately to operate with less labor. Corporate America proved shrewd at downsizing in the wake of the recession, to the delight of Wall Street but the chagrin of White House economic policy-makers.
If emergency unemployment benefit extensions had faded at the end of 2011 rather than 2013, would the unemployment rate have fallen much faster? It sure looks that way.
To be fair, this program was one of several Obama-era measures that have stifled growth, such as the Federal Reserve's zero-interest-rate policy and Obamacare's 30-hour workweek. But rolling it back sooner could have returned the economy to higher job growth in the year or two after the end of the recession rather than three or four years later.
Mueller blames 2 percentage points of the pre-2014 unemployment rate on extended benefits. Likewise, a new paper from the National Bureau of Economic Research (NBER) by Marcus Hagedorn, Iourii Manovskii, and Kurt Mitman finds that the end of extended benefits in December 2013 led to a 2 percent increase in employment in 2014.
At a time when they're short of governing accomplishments, Republicans in Congress should take credit for turning the jobs situation around by finally cutting off long-term unemployment benefits. It wasn't easy. For example, Sen. Cory Booker (D., N.J.), my victorious opponent in November's election, made restoring benefits a major theme of his campaign. At this time last year, he made his maiden speech on the Senate floor - traditionally an occasion when a new member has the liberty to talk at length about anything he chooses - on this cause. "There is no disincentive to work in these benefits," Booker said.
That seems hard to believe now, because what else but the end of long-term unemployment insurance would explain the surge in hiring when all other meaningful factors, like economic growth, wages, and interest rates, have remained stagnant or unchanged? As the NBER paper states, "There were no other policy changes at the turn of 2014 likely to have significant labor market implications."
Simply put, the best year on record for jobs since 1999 happened because the government stopped offering benefits to stay outside of the workforce. Congressional Republicans took heat a year ago to make this policy change. They should now take the credit for the payoff.