Skip to comments.Do unemployment benefits prolong unemployment?
Posted on 04/18/2010 7:55:20 PM PDT by 2ndDivisionVet
Do unemployment benefits cause unemployment? Do long term benefits prolong the length of unemployment? If you ask President Obama's Chief Economic Adviser Larry Summers the answer would be yes. He outlined his case in a paper currently on line at the Library of Economics and Liberty. To be fair he has stated he no longer holds these opinions. Seems he has changed his mind since getting his current job in the Obama admistration. Before joining the administration Summers was the Charles W. Elliot University Professor at Harvard University. He was previously the president of Harvard University. Prior to that he was Secretary of the U.S. Treasury. Still he makes some interesting points. Here are some quotes from the article:
..."unemployment insurance extends the time a person stays off the job."
..."another cause of long term unemployment is unionization. High union wages that exceed the competitive market are likely to cause job losses in the unionized sector of the economy."
..."There is no question that some long term unemployment is caused by government intervention and unions that interfere with the supply of labor."
..."by providing an incentive, and the means, not to work. Each unemployed person has a "reservation wage"- the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase that reservation wage, causing the unemployed person to remain unemployed longer."
Here are some important points Summers makes in the paper:
unemployment insurance extends the time a person stays off work.
unemployment benefits are expensive for taxpayers According to Summers taxpayers as a group are paying $8.25 per hour in unemployment benefits to the unemployed.
Unemployment rates are higher in states with high unionization. The rate is on higher 1.2 percentage points higher than states with low unionization rates.
Congress will decide this week whether to extend benefits. For some these benefits have already extended 99 weeks. These benefits no doubt are providing a safety net to those in some cases desperately looking for work. There are some other things to consider:
How will we pay for these extended benefits? We are already running record deficits that will cause long term economic problems. It is time to start making some tough choices to cut spending.
The longer you are out of a job the tougher it is to find a job. Employers start to believe your skills have eroded. Keeping people on benefits for extended periods of time may make them forever dependent on government assistance.
Long term benefits change behavior. Will we ever go back to the old program of 24 weeks of benefits? We need Americans to set aside money in an emergency fund for an event like unemployment. Workers need to be prepared to help themselves through job loss.
Perhaps in exchange for extended benefits we require those getting benefits to provide community service or other volunteer work. We would get something of value for their benefits and they could be doing work that will keep their skills active. That may be a win win for both sides.
Threats of taxes ,fee’s bank takeovers, manufacturing takeovers ,threats from the epa,glo bull warming ,cap and tax,increasing government will keep jobs turned off.
But you take the unemployment payments away from 8+ million people and this government would fall in six months with the folks doing things they normally would not do.
yep bad situation
>>I’m of two minds about this issue. What do you think?<<
The facts are pretty strong: many studies show that extending unemployment benefits extends unemployment.
As far as keeping a reserve fund goes. Well, I sacrificed (I have tube TVs in my house and a 12 year old ‘fridge for example — and pay cash for everything) to keep a 6 month cash reserve should the worst befall me. I also make it a point to keep my professional knowledge tools sharp and my contact list active.
It is a lot of work and going without. If people won’t do the same, they won’t get much sympathy from me. If you have a 60” flat screen in the parlor, 37” of same in the bedrooms, high speed internet, and Direct TV HD (with HD DVR) in every room then you (not you, 2DV, I mean the observer) can sink.
I know bad things happen — but how long is Mama Gummit (paid for by those of who DO look to the future) supposed to keep her teat out? 24 weeks? 52 weeks? 104 weeks? 208 weeks? Birth ‘till death?
No doubt in my mind the effect is real — not for everyone but for some. Have seen it among people I know.
I think it is especially likely when a household has two incomes and one person is laid off. When there is still a fulltime salary and benefits, the unemployment check may be enough of a supplement that the laid off person has little incentive to hunt for a job.
There is ample evidence that unemployment benefits extend unemployment. In this recession, a number of unemployed have received subsidized tuition to obtain a university degree while unemployed. This recession has been especially hard on white collar work in many areas. Jobs in the private sector are not being created at the rate that one would expect as the country emerges from a recession. The rats have put fear and loathing into the private sector.
Here is a reverse impact of unemployment insurance (UI). UI rates increase for firms that layoff workers. This perverse effect causes firms to be risk averse in hiring decisions. Firms postpone hiring decisions to avoid the UI penalty.
That which you subsidize you will get more of.
well, my thoughts on this would be the same for welfare in general as well. ANYONE receiving government supplemental income whether it’s unemployment, food stamps, HEALTH insurance (by the way the poor always had access to this, so where did they get their argument ?) and who is able bodied and of sound mind, should be forced to do community service. Help fix roads for free. How about making them hold the stop sign for 6 hours a day ? They should be out painting over graffiti etc... Seems like a cost effective way to save some money in local and state budgets. And the upside is it will deter many from slacking off in life. There is a job anywhere and people need to stop thinking that any job is beneath them. I’ve done some crappy jobs but it’s lead to my current place in time, without college too.
Is the Pope Catholic? OF COURSE IT PROLONGS IT.
In CA, you “could” get away with 5 job applications to show the gubmint’ you are out looking for a job. My EDD buddy who works for the State that with the amount of people applying for E/U I, it’s close to impossible to verify if the recipient did apply for the company that he wrote down. FYI, the job training courses are nonsense.
It does I’m sure. However, there are no jobs out there now. If they yanked UI, then people would just be on the streets and so on. So in most cases it’s not a good idea to keep them going forever, but until things turn around there’s no way they should be stopped.
In WA state it's 3...5 would make it even more likely people will apply for the minimum so they don't run out of real jobs to apply and claim for each week. The system subsidizes a prolonged search.
It is probably nearly impossible to check on the validity of claimed applications. I know I've always reported the truth on where I've applied when I was on unemployment...obviously not everyone has the same tie to honesty.
Under normal circumstances, yes. This is not normal circumstances. There isn’t a large number of unfilled positions out there and people just don’t apply. There are a lot of people who would gladly give the puny extended unemployment benefits for a real job.
Sometimes Freepers take a pre-depression idealogue and apply it to now. THINGS ARE NOT THE SAME!
There are some people out there seriously looking for work, but when the unemployment rate gets down to five percent, whoa nelly.
I was on unemployment 3 to 4 years ago, and every 2 weeks you received the form with 10 SLOTS. I completely filled out 10, and have the e-mails to prove it, just in case. My objective back then, was to make contact at least 5 a day as a sense of accomplishment for the day.
That which you subsidize you will get more of...says it all simply!!
When I lived in Michigan, I personally observed that every UAW worker I knew, milked their Unemployment benefits to the hilt. I see the same thing today in my home State; people do not even look for a job until their benefits are close to running out. FOR REAL!!!
Apparently different states have different numerical requirements.
The current issue is not adequate skills, but government so regulatory that it kills business confidence. There can be no "Recovery" until Obozo is out of office. Impossible for it to happen under these circumstances.
We are facing the consequences of the "elitists" in the Dem Party and some "elitists" in the Republican ranks who have sold us out to the forces of Corporate Globalism. They are Traitors. All who voted or will vote for Cap & Trade are Traitors or simply too stupid to hold public office. They must ALL be removed, NO EXCEPTIONS! Yes, you too Lindsey Graham.
Unemployment, unemployment. What a happy day!
Paid vacations, Greyhound stations full of people on their way.
Headin' south to Ol' Miami and that old sun deck.
Thank you boss for pork and beans and unemployment checks.
- Burl Ives, "Unemployment check"
I agree with you 100%, especially the TREASON part - Correcto Mundo!
The only time I ever collected unemployment was for a week one time about twentyfive years ago. Too much hassle, IMO. I decided to take a temp job that paid less than the unemployment and that required me to make a 40 mile (each way) commute through city traffic. I never had any regrets on that decision to take the temp job.
If you and I knew what has been promised to cretin like Lindsey Graham for supporting this sell-out we would already be on our way to DC to evict them from their office. When this all comes out, there WILL be Criminal Charges.
Treason! is a very serious matter.
I agree with you 100%
the catch here is, in your words, “ ... when this all comes out ... ‘, and the ‘when’ may indeed be Judgement Day!
The “Big Lie” of Global Warming is exposed for what it is. There is no repackaging that will put it back.
Now for those who still insist on trying to dance around the evidence and sell this snake oil, they only expose their reasons for prostituting themselves. That should bring out the question, WHY? It is obvious that they have been promised something VERY BIG to get this done.
Do you remember the last time the High Pressure Salesman tried to sell you something you knew you did not want? That is where we are Gentlemen.
I agree, that’s why I said I’m of two minds. I was a veterans career counselor from 1988 to 2000 at a state unemployment office, so I’m very familiar with the subject. This is the worst economy I’ve seen in my 50 years and will soon approach what my late father told me about the Great Depression if it continues on.
I disagree. The solution is to cut the benefits off altogether, not to push indentured slavery.
I was working on my own as a consultant for a few years and that is a constant search for the next job. Nobody pays you until you're already doing the work. There were lean times when I was not finding much but no checks from the government when you're on you own. When my wife had some medical problems I had to go back to a salaried position as I couldn't afford the medical insurance any more.
I guess I'm lucky but mostly I'm ready for whatever comes. If I'm not working, I'm still working my ass off for the next job.
What part of "Moral Hazard" do they not understand?
My guess is the two major causes of continued unemployment in the face of economic recovery are (1) uncertainty about the effect of a commie congress and an anti-American president on the economic future and (2) Summers's point: why take a less-than-perfect employment opportunity when you can relax on welfare for 99 weeks?
Barring a serious turnaround next November, we are all stranded in Europe, volcano or not.
I would say no in this instance. I would say that democraps and the Obama adminstration prolong unemployment.
You know, I think if it were not for food stamps, we would be seeing the traveling hungry as in the Great Depression.
This is one time that I am glad there is a safety net for people in that regard. In our area, the entire industry fell out (moved out of the country) after 150 years. The whole local economy relied on the employment that is no longer there. It’s just downright frightening.
I’m of two minds as well. I would say that it depends on how comfortable one can be on unemployment.
I have two anecdotes - one was a guy I knew several years ago. Lived in Ohio. He was a union bricklayer. He would work just long enough to gain his unemployment benefit, and then stop working and collect state unemployment for as long as he could. When it was ready to run out, he’d go back to work. During the course of his unemployment “vacation”, he’d pick up the occasional side job, working for cash instead. In other words, he milked the system. And, I bet he voted for Obambi.
I have another friend that is in the building trades in Ohio. He’s been laid off for a few months now. His unemployment runs out in May, but he’s going to get an extension at that point. He says that as long as he can get unemployment ($400 per week), he can continue to pay his bills for 2 years, with the help of his savings. However, he says that he really doesn’t want to do this too much longer, and would rather be at work. He can’t stand Obama, and knows that if someone like Reagan were in office, we’d already be seeing some real recovery.
Different states also have different benefit payout amounts also, ranging from $628-942 per week in Taxachusetts at the high end to $230 per week in Mississippi.
I would venture to say that folks in Massachusetts are more inclined to stay unemployed than folks in Mississippi.
Unfortunately high taxes and “hidden” taxes do too.
I’ve been unemployed and underemployed for 13 going on 14 months...
Since February 2009, I’ve kept the radar up and running to find work, but no one is hiring in my field enough to make an impact...
I eventually took a job at a storage facility making less than I would if I stayed on unemployment, which by the way was going to run out entirely by July of this year I was told by the Texas Workforce Commission...
But since that short two weeks of working at that job I got sick (as some may know) and have not been able to be cleared to go back to that job by my doctors...So as of late last week I was told to sign a letter of resignation, and that when I do get cleared in the next couple of months by my doctors, they might hire me back, if they have a position open...
I cannot go back on unemployment, as you have to be able to work to receive those funds...
Social Security only covers long term disabilities, to the death, and I have not received a call back from the Texas HHS folks...
So where does that leave us???
Some might say screwed, but I say relieved...Something will come up eventually, but I am not pinning my hopes on anytime soon...
We’ll just have to manage...
Some family members have told me that I shouldn’t feel guilty about being on the unemployment rolls, because I paid into that...But when you have to pay taxes on even that money, to me, it just doesn’t feel like it’s due to me for some reason...So that is why I am relieved to be off the rolls...
And for anyone in the government to be relieved that I am in this condition, so that the unemployment numbers start looking better for them...Screw them!!! Everytime I see those numbers on any news outlet it is an absolute lie, obviously...
I have no incentive to go back to school, I have no reason to startup my own business, or change anything about the way I do things in my life, why should I, I did absolutely nothing to earn this condition other than be a business decision, based upon the environment created by our government which has screwed the pooch on everything it touches...
I’m glad to be off the government teet now...Especially now with what is running the show now...
/Monday Morning Rant
it’s not indentured slavery if your receiving payment for your services rendered. But yes, cutting it off completely would be the better option. And technically all of us are slaves to our jobs, if you think about it.
We are not slaves to our jobs because we can choose to leave them to work for another.
Requiring ‘community service’ to receive unemployment benefits is indentured servitude. We don’t want Zero to raise his army do we?
I’ve been unemployed since December of 2008. However I started my own business and I now tutor students.
Does a bear.......
Yes. Case in point: My ex has turned down multiple job offers because she gets more from unemployment after taxes.
Pop quiz, who said this?
“A large proportion of these unemployed and their dependents have been forced on the relief rolls. The burden on the Federal Government has grown with great rapidity. We have here a human as well as an economic problem. When humane considerations are concerned, Americans give them precedence. The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America. Work must be found for able-bodied but destitute workers.
The Federal Government must and shall quit this business of relief.”
That was that lying sack FDR, wasn’t it?
Yep, it was proof that even he knew what the result of the New Deal was going to be.
I’m guessing President Franklin Delano Roosevelt.
The only people I know who received unemployment chose not to look for work until their benefits ran out.
When I was young and had no responsibilities, I was laid off from my first big job. I got my next job the exact same day I got my last unemployment check. It would have been the same no matter how many weeks I had.