Extending Unemployment Benefits

The past 40 years have seen huge amounts of research showing that extending the potential duration of unemployment benefits creates an incentive for the unemployed to search less and remain unemployed longer. This is one argument used against re-extending potential duration to 75 weeks. Yet most of the research describes behavior in average economic times, not when the unemployment rate is 9.5%. What little research is available suggests smaller effects when there are fewer job vacancies.

But even if that were not true, would it matter? The original, and I believe continuing, purpose of unemployment insurance is to maintain consumption of the unemployed-to prevent hardship. With 45 percent of the unemployed out of work more than 26 weeks, by far the highest percentage since the 1930s, consumption maintenance seems to argue even more strongly than usual for the wisdom of re-extending benefits.

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  1. TimOregon says:

    Congress has failed
    Every person that is unemployed or cares about the unemployed should be signing this.

    http://www.change.org/petitions/view/the_99ers_need_ a_tier_v_added_ to_unemployment _benefits

    I am not one of the unemployed however see the need for Unemployment extensions… The fact that Congress cannot find other cuts is unacceptable; they always go after what is needed the most and save their pet projects and Wall Street friends.

    Congress needs to be held accountable for the their failure to create a jobs bill and a jobs market. Extending Unemployment is not the answer however it what is needed now.
    The Answer is to create jobs, which will take Congress placing higher taxes on any company that out sources jobs over seas, higher taxes on any funds leaving the US and higher tariffs on imports. Until then we have to pay out unemployment for the failure of our leaders.

    Support unemployment here, it is one of Change.org highest all time petitions.
    http://www.change.org/petitions/view/the_99ers_need_ a_tier_v_added_ to_unemployment _benefits

    I am dropping this link everywhere to gain support for the unemployed. I am doing my part, are you?

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  2. Christina says:

    I think extending unemployment does encourage laziness and less motivation. People have become dependent on the government and they see themselves entitled to their unemployment.. I know someone that has been off work for 6 months- by his own doing.. He turned down jobs that pay $22 + an hour, because the pay isn’t as high as his last job that he had 8 years at… He says he’ll collect until the unemployment dries up.. and if he needs money before then? He just works jobs under the table… Oh, in addition, he plans on going to Las Vegas in August!

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  3. jonathan says:

    Another function is that UI signals employers – like me at times – that you can lay off people and the system will lubricate the move to their next job. If we had no UI, then unions would be much more popular, IMHO, because ordinary people would be more worried that losing a job would be a catastrophe. Sticky labor laws exist in lots of countries, clogging up the labor markets, in part because they manifest societal fear of loss. We know these restrictions can have lots of bad effects, like turning workers into permanent part-timers, like decreasing mobility and thus decreasing economic growth, but never assume that because our system has grown differently that it didn’t develop this way for a reason.

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  4. WholeMealOfFood says:

    Ideally, I would like Congress to not extend unemployment, measure the effects of not extending it, and if unemployment and long term unemployment remains unacceptably high, then extend it. It would make for a natural experiment on the subject. Personally, I think less than one point of unemployment is due to the benefits, but I would like some empirical evidence.

    Speaking of natural experiments, this would be a good time to measure the effect of the minimum wage. If the minimum wage were eliminated, no doubt unemployment would decrease (particularly if unemployment benefits are also not extended), but again it is a question of magnitude.

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  5. Bobby G says:

    It’s been a while since I looked at hard unemployment insurance data, but I seem to recall that when the insurance lasted 26 weeks, some high percentage (80%? 90%?) of the people taking advantage of unemployment insurance were “able to find” new jobs in their 25th, 26th, or 27th week after applying for unemployment insurance. Hmm, coincidence? Hardly, I think.

    I’ve heard the argument in favor of unemployment insurance, which is essentially what Mr. Hammermesh stated above… the need to maintain “aggregate consumer demand” in our economy. We want the unemployed to maintain their consumption demand so that businesses aren’t forced to cut back due to a decrease in demand, etc.

    However I feel like this is kind of a short-sighted argument. Unemployment insurance is just another form of forced income redistribution… those who are employed are subsidizing those who are unemployed, creating skewed incentives for both sides (why work when I can get paid to not work?). Let’s also not forget that unemployment insurance requires going through the government laudry machine; in other words, $1 given out in unemployment insurance requires more than $1 to be taxed from an employed person.

    Also, are we saying that the person who is employed and is getting taxed that >$1 would not spend that money as “efficiently” as someone currently unemployed (spending only $1)? I doubt this implication… and that’s before the fact that the “efficient” spend by the insurance-receiving unemployed would need to overcome the maligned labor incentives brought on by unemployment insurance as well.

    As I said before unemployment insurance is just another form of income redistrubtion, taking money away from our productive members of society (those that are employed) and giving it to our unproductive members of society (unemployed). Sure there are exceptions to the blanket statement I just made but on the large scale, unemployment insurance hurts our economy more than helps it. In a free labor market, valuable workers who are unemployed should be snatched up quickly by employers, or else they will lose an advantage of having that good employee to a competitor. If someone has made mistakes and has difficulty finding a job… why should all those that are responsible and productive have to bail them out? Rewarding mistakes/bad behavior is bad for the economy.

    I wouldn’t say we should have 0 unemployment insurance, but if anything we should cut it down… 12 weeks tops I’d say. I bet that number of people finding jobs in the 25th, 26th, and 27th week of unemployment insurance would just move down to the 11th, 12th, 13th week, but at least that’d be half as long that we’d need to pay them to do nothing.

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  6. Ian Callum says:

    Unemployment insurance is a very poorly structured program that denies help to people who really need it while providing the most benefit to people who need it least. Each state has their own rules for eligibility and each state offers a different benefit amount. Services are needlessly duplicated across 50 different states, creating huge inefficiencies and wasting resources. Incentives in the program make no sense, as it provides a subsidy for being unemployed.

    A better program would set up a single program which would set aside a portion of pay from a worker’s check (perhaps supplemented by the government for very low pay rates) which would then become available should employment be lost. This would eliminate the need for administrative hearings to determine whether a person was fired or quit, and give workers access to money that they earned when they lose their job.

    Making workers go to a government office and beg for scraps from a poorly organized bureaucracy is not an effective way to treat labor market dislocations. It’s better to incentivize workers to quickly to find a new job by letting them keep money they’ve previously earned.

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  7. Shawn says:

    I disagree that extended benefits encourages laziness and motivation to seek new employment. This may be the case for individuals that earned $10 – $12/hr (these type of jobs are a dime a dozen). The problem area is for the skilled workers (the people like myself who were making over $50/hr). Taking a job making $22/hr is the same, if not worse then me collecting unemployment (it’s a band aide). $22/hr doesn’t come close to covering my personal over head (personal over head that I acquired when I was earning over $50/hr). The only thing $22/hr does for me is tie me up, Mon- Fri between the hours of 8-5 (which leaves me absolutely zero time to seek out that higher paying job). I realize that $50/hr is not realistic at this point but $30/hr plus is, and I will keep searching until I find it. So for someone to make a general statement that unemployment creates laziness because they know of one person that is taking advantage of the system is foolish to me!! Think before your speak.

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  8. TRad says:

    You get what you pay for.

    When you pay for being unemployed – you will get higher unemployment.

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