Obama's Employment Policy: Paying People Not to Work

At WSJ, "Stimulating Unemployment":

Presidents typically invite Americans to appear at Rose Garden press conferences to trumpet their policy successes, but yesterday we saw what may have been a first. President Obama introduced three Americans—an auto worker, a fitness center employee and a woman in real estate—who've been out of work so long they underscore the failure of his economic program. Where are his spinmeisters when he really needs them?

Sure, Mr. Obama's ostensible purpose was to lobby Congress for the eighth extension of jobless benefits since the recession began, to a record 99 weeks, or nearly two years. And he whacked Senate Republicans for blocking the extension, though Republicans are merely asking that the extension be offset by cuts in other federal spending.

But Mr. Obama was nonetheless obliged to concede that, 18 months after his $862 billion stimulus, there are still five job seekers for every job opening and that 2.5 million Americans will soon run out of unemployment benefits. What happens when the 99 weeks of benefits run out? Will the President demand that they be extended to three years, or four? ...

In the immediate policy case, Democrats are going so far as to subsidize more unemployment. If you subsidize something, you get more of it. So if you pay people not to work, they often decide . . . not to work. Or at least to delay looking or decline a less than perfect job offer, holding out for something else that may or may not materialize.

The economic consensus—which includes Obama Administration economists in their previous lives—couldn't be clearer on this. In a 1990 study for the National Bureau of Economic Research, labor economist Lawrence Katz found that "The results indicate that a one week increase in potential benefit duration increases the average duration of the unemployment spells of UI recipients by 0.16 to 0.20 weeks."

A March 2010 economic report by Michael Feroli of J.P. Morgan Chase examined several studies and concluded that "lengthened availability of jobless benefits has raised the unemployment rate by 1.5% points."

A 2006 NBER study by Raj Chetty of UC Berkeley on a related subject begins, "It is well known that unemployment benefits raise unemployment durations."

The current recession is bearing this out, as a record 6.7 million Americans have now been out of work for at least six months. That's 45.5% of the total jobless, close to the highest share ever recorded. The number was 23.4% in February 2009. Americans tend to support jobless benefits on compassion grounds, but at some point such a policy becomes the false compassion of welfare by keeping people out of the job market and thus not learning new skills.

Hat Tip: Memeorandum. See also, RWN, "WSJ: Obama Presser Highlights Failure Of His Own Policies."