The results are in: Cutting unemployment benefits does not boost employment. This may seem contradictory to the recent series of events. Congress ended federal extensions of unemployment benefits at the end of December 2013, and by the second quarter of 2014, the U.S. Bureau of Labor Statistics was reporting some of the strongest jobs growth in years.
While some in Congress cite this as evidence that they made the right decision, a study from the Economic Policy Institute I co-authored last month demonstrates the basic presumption is a fallacy. Ending jobless benefits does not push workers to take jobs. It increases hardship. In fact, this hardship comes more quickly and with greater probability depending on where you live and who you are.
While North Carolina's drastic cuts to unemployment benefits in July 2013 have earned the state lots of national attention, the full extent of benefit cuts goes beyond North Carolina.
Since March 2011, eight states have cut the time that unemployed workers receive unemployment insurance benefits. Five of those states -- Florida, Georgia, Michigan, Missouri and South Carolina -- preceded North Carolina in cutting the duration from the standard 26 weeks to 20 weeks or less. Arkansas and Illinois made more modest cuts, reducing the amount of time workers receive benefits by only one week.
The reason we've heard relatively little about cuts in these states is simple. Before Congress allowed federal emergency unemployment compensation to expire at the end of 2013, the federal government picked up where the states left off.
So, even in states where legislators reduced the number of weeks that state unemployment benefits would be paid, the federal government was still providing extended benefits to long-term unemployed workers. Those are workers who by definition have been unemployed for more than 26 weeks.
To be sure, long-term unemployment remains a major weakness of the recovering U.S. economy. According to the Bureau of Labor Statistics, in 2013, the long-term unemployed were 37.6 percent of all unemployed workers nationally. That is well above the pre-recession average of 17.5 percent in 2007.
In the six states where the duration of benefits was cut to 20 weeks or less, the share of long-term unemployed ranged from 36.0 to 46.2 percent. With such persistently high levels of long-term unemployment, the expiration of federal unemployment benefit extensions means that a critical safety net is no longer available to unemployed workers who exhaust their state unemployment benefits before finding a job.
What's even worse is that this point comes six to eight weeks sooner for job seekers in the six states that made the largest duration cuts in spite of high numbers of long-term unemployed. Estimates from our report indicate that in states where the duration was cut, unemployed workers miss out on an average of $252 per week. Though these benefits are only a fraction of what workers earn while employed, they help people to meet their basic needs while looking for another job.
Another point that has been understated is the fact that jobless benefit cuts disproportionately impact African-American workers. Our report shows that with the exception of Missouri, African-American workers are a higher share of the state's labor force and the long-term unemployed in the states that cut the unemployment insurance duration, compared to those in all other states.
African-Americans are also largely overrepresented among the long-term unemployed in these states relative to their share of the state labor force. In 2013, African American workers made up between 12 and 31 percent of these states' labor forces, but were 28 to 58 percent of long-term unemployed workers.
According to the July jobs report, 3.2 million people have been out of work for more than 26 weeks. This fact alone offers compelling evidence that state cuts to the length of time jobless workers receive unemployment benefits, and the expiration of federal benefit extensions were premature. Still, strong job growth over the first half of this year makes it unlikely that these decisions will be reversed anytime soon.
Even if federal extensions are not reinstated, responsible state governments should take steps to proactively strengthen the system for the inevitability of the next economic downturn in a way that does not harm unemployed workers. This could be done by increasing the taxable wage base for the payroll taxes that fund the system or providing a wider range of possible tax rates -- both of which were options chosen by states that did not cut benefit duration.
But, at a time when so many are still trying to recover from one of the deepest recessions in generations, the move by state and federal lawmakers to cut this vital safety net seems to have been more motivated by politics than economics. And it just plain does not make sense.
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