Reducing Unemployment Benefits Increases Employment

After increasing only 0.3 percentage points per year in 2011-2013, the prime age (25 to 54) employment rate in the U.S. increased by 0.6 percentage points in the first 9 months of 2013, a significant improvement.

Prime age employment rate

So, what happened? What happened was that the extended unemployment benefits that allowed workers to receive benefits up to 99 weeks ended and the unemployed were able to receive benefits for only 26 weeks.

One evidence of this is that while overall unemployment has dropped by only about 10%, the number of people unemployed 26 weeks or longer dropped by 25%. The number of people unemployed less than 15 weeks (people not affected by the end of the extension) actually increased somewhat.

And since the prime age participation rate hasn’t dropped the drop in the number of long term unemployed does not reflect an increase in the number of discouraged unemployed.