WSJ gets it wrong, jobless benefits CUT unemployment
The confusion arises from the distinction between how expanded benefits affect the overall economy and how they may influence individual behavior. On the individual level, the report found a 0.4 percent rise in unemployment -- modest, but not trivial -- as a result of extending benefits, for exactly the reasons Republicans and the Journal say: Unemployment insurance "makes it easier to bear unemployment, and people therefore take more time looking for a new job," Valletta told The Lookout. Indeed, a follow-up study conducted by Valletta and Kuang through November 2010, at the request of Bloomberg Businessweek, found a slightly larger effect of 0.8 percent.
But as Valletta noted, plenty of other research indicates that on the macro-economic side, the benefits can improve economic conditions. Studies show [pdf] that unemployment benefits are a particularly effective way to stimulate the economy, because the poor have little choice but to spend the money rather than save it. And stimulating the economy creates jobs. A study last month by the progressive Economic Policy Institute found that extending the benefits would create more than 700,000 jobs. Indeed, some commentators described Obama's tax cut deal as a "second stimulus" -- largely because of the benefits extension.
"These separate effects act in opposition to one another," said Valletta. So the question becomes: Which effect is greater, in our current situation?
On this, Valletta was clear. In the current weak labor market, he said, the micro effect is relatively small. "I think the macro-economic effects, in terms of reducing the unemployment rate, outweigh the micro effects that increase the unemployment rate," he said.