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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Ken Clarke: Theresa May has “no idea” what to do about Brexit

According to the former Chancellor, “nobody in the government has the first idea of what they’re going to do next”.

Has Ken Clarke lost the greatest political battle of his career? He doesn’t think so. With his shoes off, he pads around his Westminster office in a striped shirt, bottle-green cords and spotty socks. Parliament’s most persistent Europhile seems relaxed. He laughs at the pervasive phrase that has issued from Downing Street since Theresa May became Prime Minister: “Brexit means Brexit.”

“A very simple phrase, but it didn’t mean anything,” he says. His blue eyes, still boyish at 76, twinkle. “It’s a brilliant reply! I thought it was rather witty. It took a day or two before people realised it didn’t actually answer the question.”

A former chancellor of the Exchequer, Clarke has served in three Conservative cabinets. His support for the European Union is well known. He has represented the seat of Rushcliffe in Nottinghamshire for 46 years, and his commitment to the European project has never wavered over the decades. It has survived every Tory civil war and even his three failed attempts to be elected Tory leader, standing on a pro-Europe platform, in 1997, 2001 and 2005.

“My political career looks as though it will coincide with Britain’s membership of the EU,” Clarke says, lowering himself into an armchair that overlooks the Thames. There are model cars perched along the windowsill – a hint of his love of motor racing.

Clarke won’t be based here, in this poky rooftop room in Portcullis House, Westminster, much longer. He has decided to step down at the next election, when he will be nearly 80. “I began by campaigning [in the 1960s] in support of Harold Macmillan’s application to enter [the EU], and I shall retire at the next election, when Britain will be on the point of leaving,” he says grimly.

Clarke supports Theresa May, having worked with her in cabinet for four years. But his allegiance was somewhat undermined when he was recorded describing her as a “bloody difficult woman” during this year’s leadership contest. He is openly critical of her regime, dismissing it as a “government with no policies”.

For a senior politician with a big reputation, Clarke is light-hearted in person – his face is usually scrunched up in merriment beneath his floppy hair. A number of times during our discussion, he says that he is trying to avoid getting “into trouble”. A painting of a stern Churchill and multiple illustrations of Gladstone look down at him from his walls as he proceeds to do just that.

“Nobody in the government has the first idea of what they’re going to do next on the Brexit front,” he says. He has a warning for his former cabinet colleagues: “Serious uncertainty in your trading and political relationships with the rest of the world is dangerous if you allow it to persist.”

Clarke has seen some of the Tories’ bitterest feuds of the past at first hand, and he is concerned about party unity again. “Whatever is negotiated will be denounced by the ultra-Eurosceptics as a betrayal,” he says. “Theresa May has had the misfortune of taking over at the most impossible time. She faces an appalling problem of trying to get these ‘Three Brexiteers’ [Boris Johnson, David Davis and Liam Fox] to agree with each other, and putting together a coherent policy which a united cabinet can present to a waiting Parliament and public. Because nobody has the foggiest notion of what they want us to do.”

Clarke reserves his fiercest anger for these high-profile Brexiteers, lamenting: “People like Johnson and [Michael] Gove gave respectability to [Nigel] Farage’s arguments that immigration was somehow a great peril caused by the EU.”

During the referendum campaign, Clarke made headlines by describing Boris Johnson as “a nicer version of Donald Trump”, but today he seems more concerned about David Cameron. He has harsh words for his friend the former prime minister, calling the pledge to hold the referendum “a catastrophic decision”. “He will go down in history as the man who made the mistake of taking us out of the European Union, by mistake,” he says.

Clarke left the government in Cameron’s 2014 cabinet reshuffle – which came to be known as a “purge” of liberal Conservatives – and swapped his role as a minister without portfolio for life on the back benches. From there, he says, he will vote against the result of the referendum, which he dismisses as a “bizarre protest vote”.

“The idea that I’m suddenly going to change my lifelong opinions about the national interest and regard myself as instructed to vote in parliament on the basis of an opinion poll is laughable,” he growls. “My constituents voted Remain. I trust nobody will seriously suggest that I should vote in favour of leaving the European Union. I think it’s going to do serious damage.”

But No 10 has hinted that MPs won’t be given a say. “I do think parliament sooner or later is going to have to debate this,” Clarke insists. “In the normal way, holding the government to account for any policy the government produces . . . The idea that parliament’s going to have no say in this, and it’s all to be left to ministers, I would regard as appalling.”

Clarke has been characterised as a Tory “wet” since his days as one of the more liberal members of Margaret Thatcher’s government. It is thought that the former prime minister had a soft spot for his robust manner but viewed his left-wing leanings and pro-European passion with suspicion. He is one of parliament’s most enduring One-Nation Conservatives. Yet, with the Brexit vote, it feels as though his centrist strand of Tory politics is disappearing.

“I don’t think that’s extinct,” Clarke says. “The Conservative Party is certainly not doomed to go to the right.”

He does, however, see the rise of populism in the West as a warning. “I don’t want us to go lurching to the right,” he says. “There is a tendency for traditional parties to polarise, and for the right-wing one to go ever more to the right, and the left-wing one to go ever more to the left . . . It would be a catastrophe if that were to happen.”

Clarke’s dream of keeping the UK in Europe may be over, but he won’t be quiet while he feels that his party’s future is under threat. “Don’t get me into too much trouble,” he pleads, widening his eyes in a show of innocence, as he returns to his desk to finish his work. 

Anoosh Chakelian is deputy web editor at the New Statesman.

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories