Fox's Varney Reverses Economists On The "Trap" Of Jobless Benefits Extensions


varney unemployment

Fox's Stuart Varney reversed economists' findings on unemployment benefits, claiming economists view an extension of benefits as "a trap" that discourages unemployed Americans from gaining employment, a notion that experts have repeatedly discredited. 

On December 28, 1.3 million unemployed Americans lost their unemployment benefits with the expiration of the Emergency Unemployment Compensation (EUC) Program, an emergency federal provision that extended unemployment benefits to workers when their state benefits ran out. The program began in 2008 to help those who lost their jobs in the recession, and because Congressional Republicans now oppose its renewal, Washington Post's Wonkblog explained, "the maximum length of time that states can offer jobless benefits will suddenly drop to 26 weeks or less."

Fox Business host Stuart Varney dismissed these now-lost unemployment benefits as a "trap" on the January 2 edition of Fox News' America's Newsroom, claiming that economists believe the benefits act as a disincentive for finding work (emphasis added):

VARNEY: Democrats essentially give you two reasons [for extending benefits]. Number one, it's the right thing to do: people are hurting, people are in need, it's the right thing to do to extend those unemployment benefits to over a million people who just lost those benefits. Second reason is the economy needs that spending power, it needs the people spending their jobless benefit check, and if you do that you create some jobs. That is the Democrats' argument. The counterargument from Republicans is, how long do you keep paying for? It's already roughly two years, you want to extend it some more, and if so, how do you pay for it? We're just going to run up the debt. And economists argue that if you extend even more you're extending the trap that many fall into, they cannot afford to take a job because if they took a job they would lose all kinds of benefits, unemployment benefit, food stamps, health care, you name it, they lose it. So this system we've got is a trap, and Republicans and many economists do not want to see that trap extended.

Varney gets it backwards -- economists have repeatedly repudiated the notion that unemployment benefits act as a trap and discouragement from work.

Varney is ostensibly citing an August 2013 report from the libertarian Cato Institute, which was roundly ridiculed by experts. "The Work Versus Welfare Trade-Off: 2013," written by Cato's Michael Tanner and Charles Hughes, centered on the notion that "[t]he current welfare system provides such a high level of benefits that it acts as a disincentive for work." 

Economists disagree. The Economic Policy Institute's (EPI) Elise Gould called the notion of a welfare/work tradeoff "wildly misleading." As EPI explained, "The notion that people would rather get unemployment compensation than a job ignores how low weekly benefits actually are." In fact, the Institute specifically rebutted the claim that unemployment benefits discourage work (emphasis original):

Could the net effect of continuing the UI benefit extensions in the current environment possibly weaken the labor market by providing a disincentive for UI recipients to return to work? The answer is a resounding "no." In the two most careful studies available on the effects of UI extensions on job search in the Great Recession, Farber and Valletta (2013) and Rothstein (2011) both find a very small increase in the duration of unemployment arising from the extensions, but they find that this is primarily because workers who receive UI benefits are less likely to simply give up looking for work.

The Center for Budget and Policy Priorities (CBPP) agrees, condemning the rhetoric behind Varney's statement as having "cause and effect backwards." As CBPP economist Chad Stone noted, unemployment benefits actually contribute to job creation (emphasis original):

In summary, arguments that emergency UI benefits are an important contributor to today's high unemployment have cause and effect backwards.  We have a temporary federal program because unemployment is so high and jobs are so hard to find.  When there are three unemployed workers for every job opening, it is hard to see how sharply curtailing the duration of UI benefits would promote job creation.  Rather, EUC benefits help create that additional demand and contribute to job creation.

Indeed, Varney's comments also fly in the face of the fact that jobless benefits require recipients to actively seek employment, and ignore the economic realities and possible discrimination faced by low-wage job seekers in a recession and a limited recovery. 

Despite recent months of relatively strong job growth, the long-term unemployed -- the same people who are facing benefit cuts when the EUC program expires later this month -- have seen little gain. As Stone also explained, long-term unemployment currently "equals the highest rate achieved in any previous recession since the end of World War II," and when previous emergency unemployment insurance programs expired, the long-term unemployment rate was at far lower levels.

long term unemployment rates

What's more, many economists agree that the expiration of jobless benefits will harm the economy. According to the CBPP, extending the EUC program until the end of 2014 "would increase inflation-adjusted GDP by 0.2 percent and increase full-time-equivalent employment by 0.2 million in the fourth quarter of 2014." This increase in GDP and employment would be prompted by increased spending among recipients, which would encourage businesses "to boost production and hire more workers than they otherwise would, particularly given the expected slack in the capital and labor markets."

The CBPP further notes that the failure to extend unemployment benefits could undo the modest economic gains made in the Murray-Ryan budget deal:

Economist Joel Prakken of Macroeconomic Advisers says that the deal would boost economic growth by "maybe 1/4 percentage point" compared to the sequestration cuts scheduled under current law.  The deal follows the sound principle under current circumstances of raising deficits in the near term to boost the economic recovery but reducing them by an even larger amount later, when the economy is expected to be stronger.

The problem is, the Congressional Budget Office (CBO) estimates that Emergency Unemployment Compensation (EUC) has a very similar impact -- boosting the economy by up to 0.3 percent by the end of 2014 and adding up to 300,000 jobs.  Not extending EUC would remove that potential boost from the economy.

Varney's attacks on the poor and recipients of government benefits are a common theme in his reporting, and continue Fox's longstanding history of misinforming on economic issues that impact low-wage workers and the unemployed.

Posted In
Economy, Jobs, Wages, & Unemployment
Fox News Channel
Stuart Varney
America's Newsroom
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