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.
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