"the cut in unemployment benefit duration led to a 2% increase in aggregate employment"

See President Costanza’s Jobs Boom from the Wall Street Journal. Excerpts:

"At a Dec. 13 event, Mr. Obama invoked the needy and explained that this supposed abdication was “bad for our economy and that’s bad for our cities, because if they don’t have the money to pay the rent or be able to buy food for their families, that has an impact on demand and businesses and it can have a depressive effect generally. In fact, what we know is the economists have said failing to extend unemployment benefits is going to have a drag on economic growth for next year.”

The White House Council of Economic Advisers forecast direct job losses reaching 240,000 as aggregate demand fell. The Keynesians at the Congressional Budget Office warned of a recession.

As late as a June 2014 rally in Minneapolis, Mr. Obama added that the Republicans had harmed “more than three million Americans who are out there looking every single day for a new job, despite the fact that we know it would be good not just for those families who are working hard to try to get back on their feet, but for the economy as a whole.”

Instead, job growth in 2014 was roughly 25% higher than any post-2009 year. Joblessness plunged to 5.6% from 6.7%. Net job creation averaged 246,000 a month. What happened?

Writing for the National Bureau of Economic Research, economists Marcus Hagedorn, Iourii Manovskii and Kurt Mitman treat the 2014 benefits cutoff as a natural experiment. The extra federal benefits ranged from nothing to 47 weeks state by state, and then all at once fell to 26 weeks nationwide. This variation allowed them to compare the employment effects between states sponsoring more generous benefits and those with less.

Assuming that the pre-2014 trends would have continued among the two groups, the authors find that “the cut in unemployment benefit duration led to a 2% increase in aggregate employment, accounting for nearly all of the remarkable employment growth in the U.S. in 2014.” They then confirm these results with a second experiment that compares adjacent counties in different states whose economies are otherwise equal except for their unemployment benefits.

Notably, job growth improved most in states and counties that offered the most generous benefits before Congress took away the punch bowl. This suggests that the extra jobless benefits reduced the incentives for businesses to create jobs and for jobless workers to fill the vacancies.

Paying people not to work means they have less incentive to get on a payroll. More generous benefits also discourage businesses from hiring. Since benefits raise the price at which people are willing to search for work, employers must pay above-market wages in the more generous regions, and respond by creating jobs elsewhere or not at all. More jobs draw more people back into the labor force, in a virtuous cycle.

Since the states with the highest unemployment were targeted with the most federal benefits, the extra benefits harmed the people and regions that suffered the worst of the recession and weak recovery. Had Mr. Obama done the opposite, the stimulus might have recognized that people prefer the dignity of a job to claiming a government stipend for not having one. Both individuals and the larger economy would have been healthier."