Among the most difficult conditions for any hard working adult to endure is that of unwelcomed unemployment. Beyond the obvious financial hardships, unemployment can result in a loss of self worth, strained family relations, and worse. Only the heartless would not wish better for the many thousands across our nation who are presently unemployed. So how can we best help?
The direct approach is to give the unemployed money to hold them over until they are able to find a new job. This week Congress approved legislation that provides an extension of jobless benefits for an additional thirteen months. This increases the maximum period for which benefits could be collected by a segment of the unemployed to well over two years. Undoubtedly, those unemployed who qualify rejoiced, along with many of their fellow countrypersons. However, is this the best policy for America
In fact there are alternatives that many experts argue would provide a greater economic benefit to all Americans--the unemployed included. Economic studies have identified that there are significant costs associated with providing extended unemployment benefits (i.e., beyond a handful of months). These costs are born not just by the tax-paying employed, but ultimately by the unemployed as well. Evidence to this effect includes the following:
· According to the Organization for Economic Cooperation and Development, “It is well established that generous unemployment benefits can increase the duration of unemployment spells and the overall level of unemployment...” And according to Alan Reynolds of the Cato Institute, “the overwhelming evidence that extended unemployment benefits raise the duration and rate of unemployment comes from economists in the Obama administration, Larry Summers and Treasury economist Alan Krueger, as well as many others...”
· Unemployment Insurance (UI) can be its own worst enemy by discouraging personal saving. According to the National Bureau of Economic Research, “precautionary saving is a significant, and perhaps the most important, determinant of individual wealth accumulation.”
· Generous unemployment insurance programs encourage otherwise sympathetic and hesitant employers to layoff workers knowing that the workers will receive benefits for an extended period.
The argument that unemployment insurance payments create jobs has been discredited by numerous economic analysts. According to the Heritage Foundation:
· “The consequences of extended unemployment benefits are some of the most conclusively established results in labor economic research. Extending either the amount or the duration of UI benefits increases the length of time that workers remain unemployed. {UI benefits} reduce the need to search for new work and to make difficult choices—such as moving or switching industries—to begin a new job.”
· Studies that claim that UI benefits provide significant economic stimulus, “ignore the effect of UI benefits in raising unemployment and incorrectly assume that unemployed households spend every dollar of UI benefits they receive. Empirical studies contradict both of these assumptions.”
· “Heritage Foundation’s macroeconomic modeling...show that for each dollar spent extending UI benefits to 46 weeks, GDP expands in the first year by just $0.17. Almost any other use of resources would provide a greater short-term boost to the economy.”
During times of recession when unemployment rolls swell and jobs are scarce, short-term unemployment insurance can be a blessing to many thousands of less fortunate Americans. However, with studies having shown that extending UI payments for long periods are ultimately self-defeating, creating more unemployment than there otherwise would be, the relevant question is which is preferable, a person relying on the “safety net” of UI payments for an extended period, or a gainfully employed person?
