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Job bennies: A bad drug?
Congress recently extended unemployment benefits again. 28 states are now giving out 79 weeks of jobless insurance. The first extension came with the stimulus package last February. Here's a good topic for debate: Has this increased the unemployment rate?
Alan Reynolds of the Cato Institute argues in the New York Post that extending jobless benefits has added two percentage points to the unemployment rate:
(Economic adviser Larry) Summers knows why the US rate is so high. He explained it well in a 1995 paper co-authored with James Poterba of MIT: "Unemployment insurance lengthens unemployment spells."
That is: When the government pays people 50 to 60 percent of their previous wage to stay home for a year or more, many of them do just that...
When you subsidize something, you get more of it. Extending unemployment benefits from 26 to 79 weeks was guaranteed to leave many more people unemployed for many more months.
Reynolds cites another study that suggests people will wait until their unemployment benefits are nearly exhausted to really spend time looking for a job:
In other words: If you extend benefits to 79 weeks, many people won't find an acceptable job offer until the 76th or 78th week.
It's a plausible argument, backed up with some evidence. But one flaw: Reynolds points to European countries like Germany and Sweden, saying their unemployment rates are lower. Last time I checked, the job bennies in Europe are much more extensive than here.
Germany now significantly reduces jobless benefits after one year, but in most of Europe, unemployment benefits are far more generous. Earlier this year, the Wall Street Journal compared the two:
Jobless benefits vary around Europe, just as they can vary state-by-state in the U.S. But in most Western European countries, the state replaces 60% to 80% of the average worker's lost salary, compared with just over half on average in the U.S., according to the Organization for Economic Cooperation and Development.
European benefits also tend to last longer. In Belgium, jobless benefits have no time limit at all. In Denmark, the state replaces up to 90% of lost wages and invests over 4% of gross domestic product every year in supporting and retraining the jobless.
Before Congress extended unemployment benefits here, Harry Moroz argued at the Huffington Post:
In addition to the benefit to individual households, unemployment insurance provides significant economic stimulus. The unemployed tend to spend all of their benefits and quickly, providing an important economic jolt. Allowing unemployment benefits to expire for hundreds of thousands of families would undermine the successes of the American Recovery and Reinvestment Act and slow the nation's economic recovery.
I don't know. I wonder if we'd be better off spending the money on incentives for companies to hire, education and retraining for workers and programs of that nature. What do you think? Are unemployment "benefits" a curse for the job market?
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I fundamentally disagree with the assertion that unemployment insurance causes a rise in unemployment.
How many of the studies' authors have been forced into the humilation of applying for unemployment? Personally, I did it once, and delayed doing it for a month after being laid off out of embarassment.
My wife is now in her 14th month of unemployment, but we were not able to claim unemployment insurance for reasons I'll not go into here, but were enough we consulted with a lawyer on the sue/not-sue equation. (looking back: now that the total value is so much higher, I wish we'd have done it, but at the time, the risk wasn't worth the reward.)
I can guarantee that her inability to locate an engineering job has absolutely nothing to due with getting a government check, but it hasn't made getting a new position any easier.
Another thought: Sure the % unemployed goes down! How do you measure those who've stopped reporting their embarassing weekly status of not having a job? Then, they qualify as "no longer looking" so stop being counted in the % unemployed.
There are aspects to this that the arrogant, incapable-of-empathy, narrow-minded "researchers" have either failed to notice or cynically ignored, whichever is more appropriate.
(Sorry for the display of anger; this one touches close to home.)
Some folks don't see things or live like you. You can see that <a href="http://www.youtube.com/watch?v=vCJz9sNLShw" target="_blank">here</a>.
I understand your anger, Nate, and Reynolds isn't necessarily correct. But there are people who take advantage. Where do you draw the line? 79 weeks is a long time. The money should at least come with some requirements after a certain point, shouldn't it?
I agree that 79 weeks is a long time. And I agree in principle that a line needs to be drawn. It's a question of how to draw that line.
For some abusers, 4 weeks is too long. (example: you're laid off for the two weeks of every summer when the plant is shut down. You file for unemployment during that two weeks?!? WTH!)
Some would argue that we should then limit the duration to 4 weeks to cut the potential for fraud.
I see a need for a more case-by-case review, which has a higher potential for fraud than a draconian cut off does, but also a higher potential for acting as the safety net it is supposed to be. This would increase case worker's loads (which would <i>(gasp!)</i> increase the size of government to keep up), but would be a more fair way of approaching unemployment.
This case by case method should allow the option to go from 1) extending the assistance to 2) cutting it off immediately and anywhere in between.
If you're unemployed and broke, but still eating out a lot, buying things unnecessarily, and generally wasting money, then, no, the assistance should not be extended. On the other hand... You get the point.
Nah.. folks should use the U6 for unemployment standards. Keeping folks on the payroll longer shouldn't effect that number. There needs to be jobs before people can start to accept jobs. There are not many ads out there.
Give a man a fish and...
I think extending the unemployment benefits has mixed results.
Sure, there will be people who abuse the system for as long as they can. Others genuinely need the assistance.
Some may be too proud to do work that is lower than their skills. Others, despite their high level of education and training, would gladly take a job washing dishes or sweeping floors.
Jobs are scarce and employers are exceedingly picky.
Even though many people want jobs there are many jobs that are going unfilled because those people don't have the necessary skills. A doctor can become a dishwasher in a minute but a dishwasher would require years of study and training to become a doctor.
Perhaps the unemployment benefits should be changed to better match the problems of today.
Instead of just looking for work in order to qualify for an unemployment check perhaps part of the unemployment benefit would also include education and training. A person would have to maintain a certain grade average and/or meet training progress reviews.
If what worked in the past isn't solving the problems of today then we, as individuals and as a whole, must come up with different solutions.
Here's the problem with unemployment for people who've never been on it: You don't get that much money from it. You get maybe enough that you might not have to spend 30-40 hours a week flipping burgers or stocking boxes, time which can be spent finding a job more in line with your qualifications.
Even getting a job that only pays minimum wage might still be better than just getting unemployment when you factor Earned Income Tax Credit (EITC).
Unless you radically change your spending habits, being on unemployment isn't sustainible in the long term. The incentive to not being on unemployment is that any real job that requires an education pays better.
Here's where that idea breaks down though: When you have a large amount of people who only qualify for low-skill minimum-wage jobs that don't pay better than unemployment benefits. That where most of the stereotypes of people who are on unemployment come from.
When you have 600 people applying for a Janitor's position. When you have month after month of net job losses. When companies decide the only way to increase profits is to lay off staff. There's something going on more than just "Unemployed people are unmotivated and lazy."
We're creating a system where there's no real incentive to create jobs and by extension no incentive to work.
I'd focus more on why employers feel that hiring more people isn't feasible. I have a sneaking suspicion a large part of it is health care costs.
JPM responded to Nate W with a link to a Youtube video of people in Detroit (that hotbed of job opportunity), standing in line to get applications for housing assistance. What is your point? That one thread of a social safety net equates to the entire blanket?
My point was an opposite perspective from Nate experiences. My opinion doesn't really matter, so I didn't state it. There are many opinions out there nowadays, so mine doesn't seem valued.
You can infer what you would like from the video, but I was trying to show Nate a different side. I may be overstepping my bounds, but Nate said..
-Embarrassed to get unemployment
-Humiliating experience
-Consulting with lawyer
-Engineering degree
The video showed the opposite extreme. It's important that we see both sides when criticizing, analysing, and formulating opinions about wide reaching public policy that affects everyone because its important to be balanced and see the implications of legislation before it's rushed through to law. Right Sandicam?
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