A new study attributes the 2014 jobs boom to the expiration of long-term unemployment benefits in late December 2013, a controversial event that Democrats and President Obama warned would hurt workers suffering in the wake of the recession.
Roughly 1.8 million additional jobs were created in 2014 because Congress allowed benefits for workers unemployed 27 weeks to expire, according to the paper published by the National Bureau of Economic Research Monday.
Republicans, who had previously expressed skepticism of extending the emergency benefits, welcomed that finding. The staff of the House Ways and Means Committee, headed by Rep. Paul Ryan, touted the study Monday morning.
The paper, written by researchers from the University of Oslo, Stockholm University and the University of Pennsylvania, arrived at its estimates by comparing employment growth in states offering differing lengths of unemployment benefits before and after federal policy set the maximum number of weeks of unemployment benefits to 26. Previously, benefits were available for up to 72 weeks in some states. They also compared growth in counties bordering those in different states with different policies.
The researchers found that “the cut in benefit duration accounted for about 61 percent of the aggregate employment growth in 2014.”
The paper’s authors also note that of the 1.8 million jobs created by the benefit cut, almost 1 million were filled by workers who were not in the labor force and who would not have searched for jobs if unemployment benefits had been extended.
Economists have disagreed about the impact of unemployment insurance, especially during a time of high unemployment and a shrinking labor force when jobs are difficult to find.
Some have suggested that unemployment benefits give workers an incentive not to search for work. Others have found evidence that benefits, which are conditional on the workers searching for a job, prevent out-of-work people from quitting the job hunt.
Before extended unemployment benefits expired in late 2013, the Obama administration predicted that failing to re-up the program would cause 240,000 jobs to be lost. That analysis was based on the fact that the unemployment beneficiaries would have less money to spend, decreasing demand for goods and services.
In late 2013, however, the same researchers who wrote the paper published by the NBER Monday found that extended unemployment benefits could hurt job creation by forcing employers to offer higher salaries than they otherwise would have to attract workers. As a result, businesses advertised fewer jobs.
Job vacancies spiked during 2014, growing by nearly a quarter, according to the Bureau of Labor Statistics. Hiring also grew, although at a slightly lower pace. The economy added 246,000 jobs a month during the calendar year, up from just under 195,000 in 2013.
The NBER is a private research organization of U.S. economists. The paper it published Monday had not gone through the full peer-review process.
