Unemployment Rate Set to Magically Drop

[OlympicBrian]

Unemployment Rate Set to Magically Drop
By Dan, Seattle
11/19/2010

Recently, a bill to extend unemployment benefits failed in the House, shot down by Republicans. While this bill may be devastating to the millions who lose their benefits around the holidays--in a strange twist, there may be a "silver lining" in place for politicians as a result of the failure.

In April of this year, the Federal Reserve Bank of San Francisco reported in published analysis on what the effect of extending unemployment benefits was last year. Specifically, they state, "The question arises whether this extended availability of UI benefits has contributed to a lengthening of unemployment spells because jobless workers are staying in the labor force longer in order to continue collecting benefits." (In other words, are people taking advantage of the system?)

The publication goes on to say, "However, analysis of data on unemployed individuals decomposed by their reason for unemployment, which affects their eligibility for UI, suggests that extended UI benefits have had a relatively modest effect. We calculate that, in the absence of extended benefits, the unemployment rate would have been about 0.4 percentage point lower at the end of 2009, or about 9.6% rather than 10.0%." Note, they conclude unemployment would have been lower by 0.4 percent if extended benefits were not in place, not higher!

Now, going one step further, based on the Federal Reserve Report and the failure to pass the extended benefits bill, there will be magic (or political sleight of hand?) set in motion; it follows that in the near future as benefits expire and we approach the end of the year, the reported unemployment rate should magically go down by about 0.4 points. It will be all over the newspapers--"Unemployment is down!"

Aren't politicians brilliant? Unemployment will be "down"--despite the fact that there are approximately 5 job seekers for each job opening. Amazing.

And by the way, this all comes at a large cost, each dollar the federal government spends today (or not) on extending unemployment benefits would raise gross domestic product by $1.60 a year from now, compared with just 35 cents per dollar for making the Bush tax cuts permanent.

Sources:
http://www.frbsf.org/publications/economics/letter/2010/el2010-12.html
http://www.epi.org/publications/entry/for_four_out_of_five_unemployed_workers_there_are_no_jobs
http://www.marketwatch.com/story/jobless-benefits-bill-fails-in-house-2010-11-18-1459320

[BeFree]

1. So

Republicans, kicking a worker when he is down is meant to make republicans look better?

[NNN0LHI]

5. They never seem to pay a political price for it so they keep doing it

[leveymg]

2. The difference would have been that .4 percent would have stopped paying mortgages and groceries.

Not, that they would have found jobs and dropped out of the numbers of those unemployment.

This is such UTTER BS.

[bluestateguy]

3. I don't get it then

Wouldn't the Republic Party congressmen want to vote for more extensions so as to keep the official reading high, thereby allowing them to blame President Obama?

[OlympicBrian]

4. Haha

You'd think the Republicans would figure that out. The whole thing is funny.

[OlympicBrian]

6. kick

[OlympicBrian]

7. kick

[OlympicBrian]

10. kick

[OlympicBrian]

8. About the $1.60 Zandi figure...

That 1.60 after a year is relative to the .35 resulting from the tax cut, and assumes Zandi's multipliers and forecasting model.

Clearly, one (borrowed) dollar spent immediately would add one dollar to consumption, and propagate through the economy. And you would expect a needy unemployed person to spend that dollar immediately, as opposed to, let's say, some rich guy getting a tax cut.

According to Zandi, as part of this propagation, you would end up with another .60 in stimulus, though there is no published paper I could find showing this math.

I don't see this as very much different than what the Federal Reserve does in practice, while pumping money into the economy. And then there is the Rivlin-Domenici tax plan, which claims millions of jobs would be created by injecting dollars into everyones pockets via a Social Security payroll tax holiday (which I personally think is absurd.)

Is the .60 added over a year too high? Perhaps. You could ask him for details. But regardless of the number, GDP includes consumption, investment, government spending, and net exports, so it's not like you could balance the budget by feeding dollars into extended unemployment benefits.

http://www.economy.com/mark-zandi/default.asp

[OlympicBrian]

11. kick

[Contrary1]

9. Well, we will also be able to credit the Republicans

with the inevitable increase in the number of foreclosures, crimes, divorces, and suicides.

[erodriguez]

12. K & R

[OlympicBrian]

13. Thank you - K&R this funny piece again

[OlympicBrian]

14. K&R

[OlympicBrian]

15. K&R

[OlympicBrian]

16. k&R

[OlympicBrian]

17. K&R

[OlympicBrian]

18. K&R