Do Jobless Benefits Discourage People From Finding Jobs? (Yes.)

New York Times ^ | March 17, 2010 | Casey B. Mulligan

[reaganaut1]

Unemployment benefits provide a small amount of help to a number of people who desperately need it. But some economists have gone too far by claiming that unemployment insurance is stimulating the economy.

Unemployment insurance is jointly administered and financed by the federal and state governments, offering funds to “covered” people who lost their jobs and have as yet been unable to find and start a new job. The program has been around for decades, but this recession has created an especially large group of laid-off workers who, despite an extensive search, genuinely cannot find another job.

With no new job in sight, a large group of people are under considerable personal and financial stress. In recognition of these facts, the “stimulus” law of 2009 extended the eligibility period for unemployment benefits, and provided additional funds for the program.

Before this recession, most economists probably thought that some amount of unemployment benefits were just and compassionate, and offered a sense of security even to people who were lucky enough to retain their jobs, despite the fact that the program would raise unemployment rates and reduce both employment and economic output.

In other words, unemployment benefits shrink the economy to some degree, but shrinking the economy a bit may be a price worth paying.

Unemployment benefits were thought to reduce employment and output because, by definition, working people were ineligible for the benefits. In particular, an unemployed person who finds and starts a new job, or returns to working at his previous job, is supposed to give up his unemployment benefits. Economists had found that a large fraction of unemployed people delay going back to work solely because the unemployment insurance program was paying them for not working.

Fewer people working means a lower employment rate, and less output

[reaganaut1]

Casey Mulligan is an economics writer for the NYT who makes much more sense than Paul Krugman.

[hal ogen]

As heartless and mean-spirited as it might sound, there are a significant number of people who look at a layoff and unemployment as a vacation opportunity. They feel no compulsion but to wait it out, rather than being flexible and looking for work. Hey...50% income and no work is such a deal. Maybe I have to drink cheaper beer, but hey.

[fightinJAG]

Of course they do. Especially when the “benefit” is known to last a fairly long time. Job seeking becomes something to do “tomorrow,” like maybe the day before the unemployment check stops coming.

I believe hard data would back this up over and over again. Yet our Congress just extended unemployment benefits to 99 weeks. That’s simply a new welfare entitlement. What’s the easiest way politically to increase the welfare roles? Continuously increase and extend unemployment benefits.

[Non-Sequitur]

Last time I drew unemployment I believe it paid about 25% of what I had been making before I was laid off. I don’t see that as an incentive for not trying to find another job.

[A_perfect_lady]

Yep. I have a very dear friend who worked like a trojan for 20 years and would sneer at people who were on unemployment. Then she got laid off. For the first month she was frantic to find another job... then she got her first unemployment check and realized, “Hey, this covers my bills.” Instant transformation. She pretty much lazed around for 9 months. She’d say “I’m not taking a job where I have to commute and lose my unemployment! I’m not taking a job that looks boring and lose my unemployment!” I mean, her attitude changed completely. Guarding that check became top priority.

[Jaidyn]

Many women make more money on unemployment, because they don’t have to pay for child care, gas, extra food, etc. My daughter-in-law was laid off for a couple months, but found a job she seems to like. Though she gave up some bucks, she is happy for the security of working again (medical field). She is also a conservative, who abhors handouts when other options are available.

[SoftballMominVA]

Not just yes, but he11 yes!

I have an aunt who was laid off at 59 - too young for retirement.

When she was first laid off, all I heard from my mom (her sister) was how desparate she was to get a job. She must have put in 100 applications. Then the first check came. Not only did it cover her bills, when added to her husband’s pension plan and his social security and minus the expense of commuting and lunches, she actually comes out almost even.

That was 6 months ago. She says she has no intentions of going back to work, ever. It is now ‘her time’ she says. Every job has too many drawbacks now, “it’s too far,” “it doesn’t look like fun,” “the hours are too long.” My mom says it is like talking to a stubborn 18 year old.

She identifies herself as a Conservative Republican, but apparently doesn’t see the irony in her actions.

[ladyjane]

It’s fairly standard for people who have just lost their jobs to feel they need some time off to relax after the stress of the termination. They won’t say it to their counselor at the unemployment office but they will to friends.

Young kids, especially, if they’re laid off in March or April, they won’t start looking until September. Even older folks will double dip by working ‘under the table’ for the summer and then start to look in earnest in the fall.

They feel entitled. They paid into the system so it’s theirs.

[DustyMoment]

It would be great if either of the first two posters understood what they were talking about. Unemployment is subsistence to help prevent those who have been laid off from facing an even worse situation by losing their homes, vehicles (if possible) and the like.

I have been on unemployment several times as the result of economic downturns that have, in turn, adversely affected my industry. 50% cut in pay? Try 75 - 80%. Just enough to make the rent or mortgage, put a few . . . . VERY few groceries on the table and hope that my wife’s income is enough to cover the rest. No vacation in any of that.

And no beer, cheaper or not.

If younger kids treat it as a paid vacation, it simply fits their known patterns of behavior. Employers already know that younger workers are, as a group, generally unreliable and have a casual attitude about work. Most of them had the same casual attitude about school.

But, before tarring everyone with the same brush, it might be useful to know . . . . and UNDERSTAND . . . . who the players are. Some rocks are gold. Others . . . . . are just rocks.

[Hodar]

For this graph to be meaningful, doesn't the sum of the points of population seeking unemployment supposed to total 100%? We have over 50 (I stopped counting at 50) samples, with each sample higher than 2%. The numbers do not add up.

IMHO, when I was unemployed it was simply a delaying action .... which would occur first ... bankruptcy or getting another job. Thankfully I got another job; but my retirement is now non-existant.

Meanwhile, I look at those who are at the lower end of the earning spectrum, and I do see those who view unemployment as a long, paid vacation. My view is "Poor people have poor ways" and I see the way they treat their unemployment benefits as a symptom of 'poor thinking'.

[DustyMoment]

You’ve never dealt with a state unemployment agency have you?

[oncebitten]

For folks like my neighbor and good friend, they look at it like their opportunity to get something back for the 30 years of paying into the system and getting nothing. I don't blame him a bit as we live in a post-industrial welfare city, where half the people don't work.

The way things are going - there really is little incentive to work and pay taxes if you can make other arrangements. I'm currently commuting 180 miles a day to work a consulting job, then I arrive home and pass the legions of porch sitters and the welfare moms driving their state-sponsored minivans and think...”why bother”.

It's sad what the government and multinational corporations have done.

[Hodar]

Last time I drew unemployment I believe it paid about 25% of what I had been making before I was laid off. I don’t see that as an incentive for not trying to find another job.

Bump!!

In my case, I went from an income of over $1,800/wk to $346/wk. My benefits were about 18.5% of my income. Now, if I were making nearly what I was earning prior to being laid off - I could see where there would be an incentive to sit back and enjoy the taxpayer financed vacation.

However, for those who are skilled, degreed and actually earn a decent living - Unemployment benefits are so paltry as to provide little security. All it did, was ensure that I wouldn't starve to death.

[Hoodat]

Two basic rules of economics:

1. If you subsidize something, you get more of it.
2. If you tax something, you get less of it

If you subsidize unemployment, you get more of it.

[Buckeye McFrog]

a personal friend of mine who lost her job in Boston a few years ago admitted to me that rather than move home with Mom & Dad and look for another one, she stayed in Boston and milked her unemployment for over a year, because benefits in Mass were so generous. Once they ran out she did move home to Pennsylvania and was working again within a month.

[DustyMoment]

They feel entitled. They paid into the system so it’s theirs.Actually, they didn't. Unemployment tax is billed to the employer and can't be trickled down to the employee.

IOW, they're still stealing.

[ladyvet]

Years ago my husband collected unemployment for about six months when his employer went out of business. He looked for local work but they said they had nothing to offer him that would come close to what he was making and that he would make more by staying on unemployment than taking one of the job openings.

Instead we moved to another state where he found work in his field. It would have been easy to stay on it and moving for work isn't easy but you do what you have to do or become owned by others.

[fightinJAG]

What does that have to do wtih anything? I’m sorry. I’m missing your point.

[Just mythoughts]

The ‘intellectual’ class has this all figured out. The only way to undo ‘welfare’ reform of the 90’s is the destruction of job creation. Just wait until these lying thieves let the Bush tax cuts whither on the vine...

This is all about the complete destruction of the middle class.

[Jane Long]

I thought this (headline) was a lead in for a new Geico commercial.