NCPA - National Center for Policy Analysis


October 2, 2008

Many see last week's reported spike in unemployment insurance claims -- the number of unemployment claims soared to 493,000 -- as a signal of the economy's weakness, and there will be more questions when September's unemployment numbers are officially released, says John R. Lott Jr., author of "Freedomnomics," and a senior research scientist at the University of Maryland.

A potential question that could be raised is how did we get here?  After starting to rise in early January, initial jobless claims peaked this last March.  New jobless claims either fell or leveled off, until July, that is, when they started to rise and kept on rising ever since. 

What changed in July, asks Lott?  The increase has had only one cause: longer unemployment insurance benefits:

  • President Bush signed the Iraq war-funding bill on June 30; the bill increased unemployment insurance benefits from 26 to 39 weeks for claims filed after the law went into effect on July 6.
  • During the week between when President Bush signed the legislation and when new claims would be eligible for the 13 weeks of additional benefits, initial claims fell by 58,000, a 14 percent drop.
  • After July 6, there has only been one week when initial jobless claims were as low as they were before President Bush signed the extension.

More frightening, the impact of these new jobless claims is still not completely felt after almost three months.  Most research indicates that a 50 percent rise in benefits increases unemployment by those eligible for insurance by 50 percent.  Nearly 85 percent of the unemployed live in states that are now receiving the extended benefits, and about half of the unemployed in those states are eligible for unemployment insurance, concludes Lott.

Source: John R. Lott Jr., "More Benefits, More Unemployment," Fox News, September 29, 2008.

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