Money as a motivation | Columns


The news is filled with stories of managers complaining about difficulty in hiring. These stories usually highlight the idea that unemployment benefits discourage people from taking a job.

There are several aspects of these stories that I find incredibly frustrating.

More importantly, this story is a clear scientific hypothesis. This hypothesis should be tested before being passed on as if it were true.

In other words, this idea could be wrong. Instead, it might be true that people who receive unemployment benefits are mostly concerned with finding their next good job. The perks may be helpful in overcoming a difficult stretch, but not something that changes their behavior.

As a side issue, I don’t understand why the manager class gets a free pass to complain about the difficulty of their job. One of the main responsibilities of managers is to hire staff. When it’s hard to hire people for low pay, our response to complaints from managers should be a little harsh. If managers don’t want to do their job of hiring people, they could always stop being managers.

Let us return to the scientific hypothesis. This idea is testable.

The recent study I found, published in 2020, is from Chicago Federal Reserve economists. They analyzed surveys carried out each year among 1,200 people on their employment. The surveys for each year between 2013 and 2019 were used by economists.

Among those interviewed, some were unemployed. For these people, the survey measured the number of hours per week that each person spends looking for a job and the number of applications they submitted. The survey also indicated whether they received unemployment benefits.

So, this survey data is a way to test the idea that is constantly mentioned in news reports. Do people who receive unemployment benefits tend to avoid looking for work?

No, quite the contrary. In other words, the perks seemed to motivate people to spend more time looking for a job.

People on unemployment benefit spend 11.1 hours per week looking for work and request 10.7 jobs per month.

People who had exhausted their benefits seemed to reduce their efforts considerably. They searched for jobs 4.7 hours per week and applied for 3.7 jobs per month.

It’s a pretty dramatic difference. In other words, people who received benefits put much more effort into finding a new job.

The authors quickly point out the limitations of this study. The main limitation is that the number of unemployed people was small enough that they could not go into details. For example, those with a college degree may behave differently from those without a degree. These data, however, cannot give us such detail.

These results appear to be broadly consistent with many other economic studies. For example, economists from the Federal Reserve of New York and the University of Pennsylvania studied French workers and came to similar conclusions. This study included 500,000 unemployed during the period 2013-2017. After some detailed mathematical calculations, the authors concluded that the unemployed increased their search for a new job by 51% in the year before benefits expired. This increase lasted for about a year after benefits expired, but then people significantly reduced their job search efforts.

This study, however, is not as relevant to any story about jobs in the United States. The study focused on people eligible for unemployment benefits for a period of one to two years. Typical unemployment benefits in the United States last up to six months.

So when managers or politicians complain about unemployment benefits, the onus is on them. The evidence seems to show that the benefits actually encourage job search. Do they have good reason to think differently?

Christer Watson, of Fort Wayne, is Visiting Assistant Professor of Physics at Purdue University in Fort Wayne. The opinions expressed are his own. He wrote this for The Journal Gazette, where his columns normally appear on the first and third Tuesday of each month.

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