Barro v. Barro

Robert Barro today in the WSJ, The Folly of Subsidizing Unemployment, estimates that UI extensions have increased the unemployment rate by 2.7 percentage points.

To get a rough quantitative estimate of the implications for the
unemployment rate, suppose that the expansion of unemployment-insurance
coverage to 99 weeks had not occurred and–I assume–the share of
long-term unemployment had equaled the peak value of 24.5% observed in
July 1983. Then, if the number of unemployed 26 weeks or less in June
2010 had still equaled the observed value of 7.9 million, the total
number of unemployed would have been 10.4 million rather than 14.6
million. If the labor force still equaled the observed value (153.7
million), the unemployment rate would have been 6.8% rather than 9.5%.

It's not clear to me why we should assume that the share of long-term unemployment in this recession should equal that in 1983.

Barro also argues:

We have shifted toward a welfare program that resembles those in many Western European countries.

In contrast Josh Barro, son of Robert, in How much do UI Extensions Matter for Unemployment, concluded that 0.4% was probably on the high side:

Two Fed studies suggest that [extensions of UI] may have contributed 0.4 to 1.7 percentage points to current unemployment. But a closer look at this research makes me skeptical that the effects have been so large.

…The incentive effects of UI extension must also be weighed against
the stimulative effects of paying UI benefits. For some reason it’s
become almost taboo to note this on the Right, but UI recipients tend
to be highly inclined to spend funds they receive immediately, meaning
that more UI payments are likely to increase aggregate demand. UI
extension also helps to avoid events like foreclosure, eviction and
bankruptcy, which in addition to being personal disasters are also
destructive of economic value.

As a result, I am inclined to favor further extension of UI
benefits while the job market remains so weak. I am not concerned that
this leads us down a slippery slope to permanent, indefinite
unemployment benefits (which historically have been one of the drivers
of high structural employment in continental Europe) as the United
States has gone through many cycles of extending unemployment benefits
in recession and then paring them back when the economy improves, under
both Republican and Democratic leadership.

I call this one on both counts for Josh.   


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