Leon Levy Lecture: The Lot of the Unemployed

Job search by the unemployed is a topic of much interest in labor economics and economics more generally. Alan B. Krueger, the Leon Levy Member (2007–08) in the School of Social Science, discussed “The Lot of the Unemployed” in his Leon Levy Lecture in April, which was funded by the Leon Levy Foundation.

Bendheim Professor of Economics and Public Affairs at Princeton University and former Chief Economist at the U.S. Department of Labor (1994–95), Krueger has published widely on labor economics, the economics of education, the economics of terrorism, and environmental economics. He was recently selected to serve on the Board of Directors of the John D. and Catherine T. MacArthur Foundation.

According to Krueger, while the unemployment rate has been modest by historical standards, the consequences of unemployment are greater than they have been historically. “Even though the unemployment rate has been trending down at least since the last twenty years,” explained Krueger, “the average duration of an ongoing spell of unemployment looks like it has worsened. Since the late 1960s, there has been an upward trend in the duration of unemployment for those who become unemployed.” He also noted that the unemployment rate has jumped up in the current economic slowdown.

In discussing the life of the unemployed, Krueger referenced two surveys: the American Time Use Survey, which the Bureau of Labor Statistics has collected since 2003; and the Princeton Affect and Time Survey, which was designed by Krueger and his Princeton colleague Daniel Kahneman and implemented by Gallup in the summer of 2006.

The Bureau survey was used to measure how an unemployed person spends his or her day (sleeping, searching for a new job, watching television, shopping, caring for others). The Krueger and Kahneman survey assesses how the unemployed and employed feel moment to moment (happy, sad, stressed, interested, pained, tired).

“There is a view in economics that unemployment is like leisure, but I don’t think that is the right view,” said Krueger. “People who are unemployed do spend time searching for a new job and, more importantly, they are not very happy with their lives or free time.”

According to Krueger, unemployment “seems to scar individuals, which is quite surprising to researchers who work in this area because there is a ­well-­known phenomenon in psychology that people tend to adapt to their circumstances.” Yet the longer a person is unemployed, the more likely he or she is to stop searching for a job and drop out of the work force entirely; their life satisfaction is also permanently lower.

Krueger also examined the effect of unemployment insurance benefits on job search activity. “Economists worry a lot about an unintended consequence of unemployment insurance known as ‘moral hazard,’” said Krueger, “which means that because benefits are available to people they might not search for a job as hard.”

In addition to advocating that unemployment insurance benefits be extended to ­part-­time workers who pay unemployment insurance taxes but are not eligible in many states to receive unemployment benefits, Krueger emphasized the importance of improving the automatic triggers that extend unemployment insurance benefits beyond the typical ­twenty-­six weeks.

“In the old days, meaning before the Reagan administration, a higher unemployment rate would automatically trigger extended benefits.” said Krueger. “Now the triggers are much harder to reach. It is very rare that extended benefits are triggered, which is unfortunate because you might think of extended benefits as an automatic stimulus to spur consumption when the economy slows down.” In March, Krueger testified before the U.S. Senate Committee on Health, Education, Labor, and Pensions that unemployment benefits should be extended in the current slowdown if automatic triggers that extend benefits are not fixed. In June, Congress voted to extend benefits for thirteen weeks, and the President signed the bill on June 30. ■