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The untold story behind today's unemployment




Everyone understands the need for unemployment insurance. You get fired because things go badly for your company, and suddenly you're on your own. It takes awhile to get back on your feet and find a job, especially if the economy is in a recession. That's why we have government- and employer-sponsored insurance programs that pay unemployment compensation for up to six months to those who lose their jobs through no fault of their own.

Occasionally, Congress will decide that economic conditions are so adverse that an extension of these benefits is called for. The most recent extension was called the Emergency Unemployment Compensation (EUC) program, and it started in July 2008. It was also by far the most generous in its eligibility requirements, effectively covering workers who became unemployed as early as May 2006. The chart above shows the number of persons receiving EUC in red, the number receiving regular unemployment compensation in blue, and the total in green. The EUC program has been extremely successful at recruiting recipients, since it has gone from zero to over 5 million in just 18 months and continues to expand, even as the number of those losing their job each week has fallen by 30% since last March.

In mid-2007, well before the recent recession began, the unemployment rate was a mere 4.4%. Out of a workforce (those working plus those looking for work) of 154 million, some 6.8 million were out of a job, and about 2.5 million were receiving unemployment insurance. Today, the workforce has shrunk to 153 million (discouraged workers have stopped working, others have decided to call it quits and retire), 14.8 million are out of a job, and 11.5 million are receiving unemployment insurance.

To put these numbers in historical and proportional perspective, I offer the next two charts.



The number and proportion of persons receiving unemployment insurance today is far greater than anything we've seen before. Even though this recession's highest unemployment rate of 10.1% was lower than the highest unemployment rate (10.8%) of the 1981-82 recession, the portion of the workforce receiving unemployment compensation today is 63% higher than it was at the peak of the 1982 recession. Fully 78% of those looking for a job today are receiving unemployment insurance, compared to only 38% at the height of the 81-82 recession.

Never before have we seen anything even close to today's largesse and compassion for those without a job. While not wanting to argue whether this is right or wrong, I would however argue that the aggregate desire of the unemployed to find a job today is undoubtedly much less than it was during the depths of the 81-82 recession.

And so we have here one more reason why this recovery is proceeding more slowly and painfully than we all would like to see. Not only are employers reluctant to hire because of all the legislative, political, and tax uncertainty out there, but the incentive for workers to seek out the jobs on offer is weaker than ever, especially for those jobs that don't come equipped with salaries exceeding their current exceptional benefits. Congressional compassion has its costs, and they are not just measured in terms of expenditures, but also in a slower recovery.

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