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Unemployment Due to Lack of Demand for Workers

Our nation’s extraordinarily high level of unemployment is due to a lack of demand for workers rather than a lack of people willing to work.

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Conservatives often claim that unemployment insurance, or UI benefits discourage the unemployed from seeking employment. They argue that reduced job seeking on the part of the unemployed actually increases unemployment as people choose to rely on benefits rather than find a new job. The facts tell a different tale, however. Our nation’s extraordinarily high level of unemployment is due to a lack of demand for workers rather than a lack of people willing to work.

Consider that right now there’s only one job opening for every five job seekers and this has been the case—or worse—since January 2009. Think of this like a game of musical chairs: There’s one chair but five players (or 3 million chairs and 15 million unemployed). When the music stops, four out of five people won’t be able to find a seat. These long odds of finding a job are highly unusual. Before the recession began in 2007 there was just over one worker seeking a job for every opening available (1.5 workers per job opening).

Because the problem is a lack of demand for workers the link between receiving UI benefits and weak job search effort is currently very weak. Research by the San Francisco Federal Reserve Bank shows that unemployed workers who qualify for UI benefits stay unemployed for only 1.6 weeks longer than those who do not qualify for such benefits. In a strong labor market more weeks of UI benefits may not make sense, but in this especially challenging economy they help those who simply cannot find work.

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