Punishing unemployed people doesn't help them find work

A new study from the Boston fed looks at the effect of unemployment insurance, and finds it doesn't encourage unemployment.

Punitive treatment of the unemployed is usually justified in terms of the incentives it provides. So, for instance, the rationale for increasing the wait until you can claim unemployment benefits from 3 to 7 days is apparently that it "send[s] the message from the very start that rights to benefits are conditional on the requirement to search for work".

One particular argument made is that unemployment benefits in general stop people searching for work. That's most frequently heard in the context of long-term unemployment; it is, for instance, at the heart of the myth that welfare policy needs to tackle the problem of households with "three generations of worklessness". If welfare queens are languishing on unemployment benefit, content to be paid by the state not to work, then cutting that benefit will encourage them back into work.

But – surprise! – it seems that that plan doesn't actually work. A paper from the Boston fed looks at the effect of the unemployment insurance on the Beveridge curve. That's the chart showing the relationship between unemployment and the number of vacancies:

 

The US has experienced a worrying alteration in the shape of its Beveridge curve since the recession. There are now many more people unemployed for each vacancy than there were in the years running up to 2009 (a fact easily visible in the shift between the blue and red sections of the curve in the chart above). Traditionally, that's seen as indicating a failure to match unemployed people to available jobs, perhaps through a skills shortage or a geographical dislocation. But some suggest it's due to a recent extension of unemployment insurance in the country, which allowed unemployed people to claim the benefit for 99 weeks after losing their job.

The paper's author, Rand Ghayad – the same researcher who exposed just how damaging long-term unemployment is in April – devised a natural experiment to examine whether unemployment insurance was the cause.

(A natural experiment takes advantage of some quirk in the world at large which sorts people quasi-randomly into different groups, and then assigns different treatments to them. A classic example is to look at the fates of people who were one mark above, and one mark below, a grade boundary: their intelligence is likely equal, and so any difference in outcome can be attributed to passing the exam)

In this case, Ghayad compared long-term unemployed people who were eligible for the insurance with those who had voluntarily quit their job, those who had never worked before, and those who had left the labour market for a period, all of whom are not eligible for the extended benefits. The characteristics of the two groups are obviously different, but the comparison is revealing nonetheless. Here's the shift in the Beveridge curve for those who are eligible for unemployment insurance:

That's still an outward shift, and thus still represents a weakened labour market. But it's nothing compared to the shift in the Beveridge curve for those who are ineligible:

The unemployment rate for that group shot up in the recession – and then never dropped, even as job openings began to reappear.

In other words, unemployment benefits really don't seem to discourage people from seeking work. If anything, they appear to help: the groups which can get unemployment insurance saw their joblessness fall after the recession. It's easy to come up with reasons as to why this might be the case: perhaps not having to worry about how the bills are going to be paid in the short term gives you time to effectively look for a job in the long term? Or perhaps punitive treatment of the unemployed just pushes them into the shadow economy sooner?

Either way, the study ought to be another nail in the coffin of the idea that the way to get people back into work is with liberal application of the stick. It seems that might be the worst thing you could do.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Winning Scottish independence will be even harder than before - but it may be the only choice

Independence campaigners will have to find answers on borders, currency and more. 

The Brexit mutiny has taken not just the UK economy and its relationship with Europe into uncharted waters. it has also imperilled the union between Scotland and England. From Sir John Major to the First Minister, both Unionists and Nationalists had warned of it. The outcome, though, has made this certain. The Leave vote in England and Wales contrasted with an overwhelming Remain vote north of the border.

That every region in Scotland voted to stay In was quite remarkable. Historically, fishing and industrial communities have blamed the European Union for their woes. That antagonism was probably reflected in lower turnout - an abstention rather than a rejection. 

The talk now is of a second referendum on independence. This is understandable given the current mood. Opinion polls in the Sunday Times and Sunday Post showed a Yes vote now at 52 per cent and 59 per cent respectively. Moreover, anecdotal evidence suggests even arch No vote campaigners, from JK Rowling to the Daily Record, are considering the option.

The First Minister was therefore correct to say that a second referendum is now “back on the table”. Her core supporters expects no less. However, as with the economy and Europe, the constitutional relationship between Scotland and England is now in uncharted seas. Potential support for independence may be higher, but the challenges are arguably bigger than before. The difficulties are practical, political and geographic.

Of course the Little Englanders likely to take the helm may choose a velvet divorce. However, given their desire for the return of the Glories of Britannia that’s improbable. They’re as likely to wish to see Caledonia depart, as cede Gibraltar to Spain, even though that territory voted even more overwhelmingly In.

Ticking the legal boxes

Practically, there’s the obstacle of obtaining a legal and binding referendum. The past vote was based on the Edinburgh Agreement and legislation in Westminster and Holyrood. The First Minister has indicated the democratic arguments of the rights of the Scots. However, that’s unlikely to hold much sway. A right-wing centralist Spanish government has been willing to face down demands for autonomy in Catalonia. Would the newly-emboldened Great Britain be any different?

There are no doubt ways in which democratic public support can be sought. The Scottish Government may win backing in Holyrood from the Greens. However, consent for such action would need to be obtained from the Presiding Officer and the Lord Advocate, both of whom have a key role in legislation. These office holders have changed since the first referendum, where they were both more sympathetic and the legal basis clearer. 

Getting the EU on side

The political hurdles are, also, greater this time than before. Previously the arguments were over how and when Scotland could join the EU, although all accepted ultimately she could remain or become a member. This time the demand is that Scotland should remain and the rest of the UK can depart. But will that be possible? The political earthquake that erupted south of the Border has set tectonic plates shifting, not just in the British isles but across the European continent. The fear that a Brexit would empower dark forces in the EU may come to pass. Will the EU that the UK is about to leave be there for an independent Scotland to join? We cannot know, whatever European Commission President Jean-Claude Juncker may be saying at the moment. The First Minister is right to start engaging with Europe directly. But events such as elections in France and the Netherlands are outwith her control. 

Moreover, currency was the Achilles heel in the last referendum, and hasn’t yet been addressed. George Osborne was adamant in his rejection of a currency union. The options this time round, whether a separate Scottish currency or joining the euro, have yet to be properly explored. A worsened financial situation in the 27 remaining EU members hampers the latter and the former remains politically problematic. 

The problem of borders

Geography is also an obstacle  that will be even harder to address now than before. Scotland can change its constitution, but it cannot alter its location on a shared island. In 2014, the independence argument was simply about changing the political union. Other unions, whether monarchy or social, would remain untouched. The island would remain seamless, without border posts. An independent Scotland, whether in or out of the EU, would almost certainly have to face these issues. That is a significant change from before, and the effect on public opinion unknown.

The risk that's worth it

Ultimately, the bar for a Yes vote may be higher, but the Scots may still be prepared to jump it. As with Ireland in 1920, facing any risk may be better than remaining in the British realm. Boris Johnson as Prime Minister would certainly encourage that. 

David Cameron's lack of sensitivity after the independence referendum fuelled the Scottish National Party surge. But perhaps this time, the new Government will be magnanimous towards Scotland and move to federalism. The Nordic Union offers an example to be explored. Left-wing commentators have called for a progressive alliance to remove the Tories and offer a multi-option referendum on Scotland’s constitution. But that is dependent on SNP and Labour being prepared to work together, and win the debate in England and Wales.

So, Indy Ref The Sequel is on the table. It won’t be the same as the first, and it will be more challenging. But, if there is no plausible alternative, Scots may consider it the only option.

Kenny MacAskill served as a Scottish National MSP between 2007 and 2016, and as Cabinet Secretary for Justice between 2007 and 2014.