Blaming Unemployment Insurance for Unemployment

JPMorgan Chase released what it called an economic research report (pdf) last week that purports to show that extended unemployment insurance payments cause higher unemployment and longer-term unemployment.


the availability of these benefits has almost certainly played a significant role in the record rise in the average duration of unemployment. Consequently, they have also had a role in the stunning rise in the unemployment rate over the last two years.

Noting the current correlation of high unemployment, longer average duration of unemployment and expanded unemployment benefits, the giant, previously bailed-out Wall Street bank asserts:

The magnitude of these effects has been the subject of a vast amount of econometric investigation. The variable most studied is the degree to which unemployment duration increases for a given change in the maximum available duration of jobless benefits. Most estimates of this elasticity have centered on a finding that an increase of one week in the availability of benefits raises the average duration of unemployment by 0.2 week.

Taking an assumed national average of an additional 47 weeks of unemployment insurance payments to jobless workers, the report continues:

Based on the widely accepted 0.2 estimate of the responsiveness of average duration to the length of benefit availability, the 47 extra weeks of benefits could be expected to increase average unemployment spells by 9.4 weeks. Since only about half of the unemployed are eligible to receive unemployment benefits (the other half generally have not met the requirements for sufficient prior employment or lost their jobs through layoffs), the total average unemployment duration would be expected to increase by 4.7 weeks.

Got that? The report goes on, then, to extrapolate that the increased duration of unemployment they assert is caused by extended unemployment insurance is itself the cause of a 30% increase in the unemployment rate:

—this would imply a 30% increase in the unemployment rate. Starting from an unemployment rate before the recession of roughly 5%, this means that increased benefits can account for 1.5%-pt of the subsequent increase in the unemployment rate.

Never mind that mass joblessness and record rates of long-term unemployment both preceded the extension of additional jobless benefits.

This kind of cockamamie pseudo-science would just be laughable if it weren’t a potentially dangerous threat to the survival of millions of unemployed Americans. You can bet that bank lobbyists and their conservative cronies are circulating this report and others like it to gin up opposition to extending unemployment benefits.

And this from JPMorgan Chase, the firm that helped bring down Lehman Brothers, helped precipitate the Great Recession resulting in millions of Americans losing their jobs, and whose CEO Jamie Dimon meanwhile took home a $17.6 million compensation package last year.

Reading this JPMorgan Chase report reminded me of a wonderful little book that my 7th grade math teacher distributed to the class. By a terrific writer Darrell Huff, it’s titled How to Lie with Statistics and was first published by Norton in 1954.


Still available in print, the book introduced me to the notion that correlation does not imply causation — meaning that just because two things occur together it doesn’t imply that one causes the other.

But, alas, that appears to be beyond the grasp of the genius economic minds at JPMorgan Chase.

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