Hannity falsely suggested Fed said unemployment benefit extension increased ranks of those without jobs

Written by Greg Lewis

Published

Sean Hannity claimed that the economic recovery act “actually raised unemployment,” citing minutes from a January Federal Reserve meeting to falsely suggest that the extension of unemployment benefits in the recovery act increased the number of people who don't have jobs. In fact, the Federal Reserve minutes Hannity cited actually stated that the provision had the effect of raising the measured unemployment rate because people who lost their jobs sought to remain in the workforce in order to receive benefits rather than leaving the workforce and being counted as “discouraged workers” instead of “unemployed.”

Hannity misreads Federal Reserve minutes to misleadingly claim stimulus “actually raised unemployment”

From the February 22 broadcast of Fox News' Hannity:

HANNITY: And millions of unemployed Americans are still probably wondering what exactly President Obama's stimulus did to help the economy. Now, it's a tough question that even the Obama administration has a difficult time explaining. But an editorial in Investor's Business Daily sums up one of the stimulus's biggest achievements: It actually raised unemployment.

This is not a joke. Now, the article quotes minutes from the Federal Reserve's Open Market Committee's January meeting that read, quote, “several extensions of emergency unemployment insurance benefits appear to have been raised and raised the measured unemployment rate.” Now, all things considered, the editorial estimates that the stimulus added 2 percentage points to the unemployment rate. Hey, congratulations, Mr. President.

Hannity was referring to a February 19 IBD editorial in which Alan Reynolds, a senior fellow at the Cato Institute, wrote:

The American Recovery and Reinvestment Act of 2009 had extended federally funded unemployment benefits by 53 weeks, and another bill in November added 20 more -- bringing the total up to 99 weeks in states with high unemployment.

As the Federal Reserve's Open Market Committee minutes for January noted: “The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force. ... Some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during this recession.”

My own estimate, in past articles available at cato.org, is that the stimulus act added about 2 percentage points to the unemployment rate.

Fed actually said provision increased “measured unemployment rate” by keeping people from leaving workforce

Federal Reserve: Extensions to unemployment insurance benefits are “encouraging some who have lost their jobs to remain in the labor force.” From the minutes of the January 26-27 meeting of the Federal Reserve Open Market Committee, during a discussion on inflation:

Though participants agreed there was considerable slack in resource utilization, their judgments about the degree of slack varied. The several extensions of emergency unemployment insurance benefits appeared to have raised the measured unemployment rate, relative to levels recorded in past downturns, by encouraging some who have lost their jobs to remain in the labor force. If that effect were large -- some estimates suggested it could account for 1 percentage point or more of the increase in the unemployment rate during this recession -- then the reported unemployment rate might be overstating the amount of slack in resource utilization relative to past periods of high unemployment.

Several participants observed that the necessity of reallocating labor across sectors as the recovery proceeds, as well as the loss of skills caused by high levels of long-term unemployment and permanent separations, could reduce the economy's potential output, at least temporarily; historical experience following large adverse financial shocks suggests such an effect. On the other hand, if recent productivity gains were to be sustained, as some business contacts indicated they would be, potential output currently could be higher than standard measures suggested, and the high level of the unemployment rate could be a more accurate indication of slack in resource utilization than usual measures of the output gap.

Reuters MacroScope Blog: "[U]nintended consequence" of extending jobless benefits is that it delays when people leave the labor force and are no longer classified as “unemployed.” A February 18 post on Reuters' MacroScope blog, referring to the Federal Reserve meeting, explained that in order to qualify for unemployment benefits, “you have to be looking for a job. You also have to be looking for a job in order to be counted among the unemployed. If you give up the search, you move over to the 'discouraged workers' category, which has grown rapidly in the past year.”