With Congressional wrangling over continued extension of unemployment benefits (now up to almost 2 years at 99 weeks for some cohorts, although the current debate is to extend newer participants), it’s worth exploring where it’s appropriate to draw the line. There are passionate pro and con arguments and depending on your perspective, you may feel very strongly one way or the other. If you’re a gainfully employed high income worker, you may be fed up with the prospect of seemingly indefinite unemployment benefits being paid to Americans who could clearly be working. Conversely, if you’re an IT professional who had your job outsourced to India and the you can’t find anything paying even close to your old salary, you might be saying it’s totally justified.
What Does the Data Tell Us?
If you’re wondering how unemployment benefits impact the motivation and behaviors of the unemployed, here’s an interesting study putting some hard statistical analysis to the question. Some of the key findings:
- “job search is inversely related to the generosity of unemployment benefits”
- “job search intensity for those eligible for Unemployment Insurance (UI) increases prior to benefit exhaustion”
On one hand, if you’re unemployed and reading this, you may be saying, “That’s bullshit! I’m spending all day every day looking for a job!”. But this is what the data shows. As the benefits are coming to an end, there’s an increase in effort dedicated to the cause. By many estimates, we’re currently seeing about 1% too high on the unemployment rate because of people that have further to go on their Unemployment Benefits – if the duration were shorter, the unemployment rate would be lower…at least that’s what this study purports to show.
The Case For 2 Years of Unemployment Insurance
- This is no typical situation. 26 weeks is for a typical economy. We’re not in one now. When you’re out of a job in a bustling job market, it’s much easier to find a new job. Employers are scrambling for qualified employees, wages are increasing, new businesses are being formed – you’ve gotta work NOT to find something. Right now, layoffs are still occurring in droves. We’re not growing jobs. Just like deficit spending (in theory), it’s appropriate to go further into the red in downturns to make them less painful as long as you make up for it in the upturns. The standard unemployment insurance term is appropriate for a growing economy and an extended period is appropriate coming out of a severe recession such as this.
- By cutting off unemployment insurance to huge numbers of families at this time, it will prolong the recession, crush any hopes of a recovery in housing as defaults skyrocket, and curtail a recovery. Decreased consumption means decreased job creation.
- We’re going to pay for it one way or the other. People will just shift from one form of public assistance to another. Take away that unemployment check and people will be forced into other services for the impoverished.
- It’s un-American to allow once gainfully employed Americans to suffer. It’s not for lack of trying. There just aren’t jobs out there. Until the situation improves, let’s keep them in their homes, keep their kids in their schools, keep them in the game!
The Case Against Indefinite Unemployment Insurance
- When does it end? As we see with virtually all legislation recently that only incurs spending but requires no spending offset elsewhere, once Congress get their teeth into something, they just keep extending it. It’s free! If you just kick the costs down the road, someone else has to deal with it while said politician has a great election campaign strategy for the next election (“I voted to extend benefits for struggling Americans while my draconian opponent put families out of their homes”). As we saw Congress throw more money down the rat-hole that was GM before finally letting them declare bankruptcy, to extending cash for clunkers to extending the new homebuyer tax credit – once the gravy train pulls out of the station, it’s hard to stop it. So, I question, if 2 years is the magic number, why not just make it permanent? You can be on unemployment insurance forever. I’m sorry, but 2 years is an exceedingly long time, and Congress is continually extending the program. So, why not be honest with the American people and just say it’s indefinite. Or call it 5 years or whatever. At least there’s a price tag associated with that. Constant tinkering and re-extensions leave the door open to infinite public debt.
- Move! Many of the unemployed feel entitled to live in the same area. They grew up in an area, like the area, have family in the area, and it would be painful to move. But these are tough times! People say how can you move when you have no money? Well, where was your emergency fund? You bought a house with no money down at the peak and now you’re underwater? – Why is that for the taxpayer to fix? You can’t tap a 401K or sell anything or work part time even to make ends meet? How did you get in that situation?
Some Personal Anecdotes:
We just had some friends over right after the bill passed to extend benefits to 99 weeks. They were griping about a scammer brother who always bilks the system every chance he gets. Apparently, he’s laughing all the way to the bank over that extension of benefits because he’s been collecting unemployment checks all along while working under the table and living with mom. It’s gravy. He had no intention of getting a real job anyway, but he’s just living off Uncle Sam for a few extra months each time it gets extended.
We have another set of friends – another brother (theme?) who does “seasonal work” only. Apparently, he only works in the Spring and Summer and then collects unemployment each fall and winter. He lives with mom too. He basically makes enough during his 6 months of actual work to supplement his 6 month vacation each year. And that has nothing to do with the current extension, apparently he’s been doing this every year for years.
Next, we had a friend who was highly compensated and had many opportunities at (seemingly?) suitable six-figure jobs but he continued to pass on them saying, “It’s nowhere near what I was making. It wouldn’t even pay the mortgage” (on a 3,500 sq ft house w 15K annual taxes). I guess if I were in his shoes I’d want to replace my old salary as well and I wouldn’t want to move. But at who’s expense in the meantime? He did eventually find a job at 9 months – much less than 2 years. He did however, have 6 months of severance at full pay. So, he really was on UI for 3 months. That begs the question as to whether the pain of only being paid a few grand per month instead of 20K per month forced him to take a job that paid a little less than that 20K per month at the old salary. The same notion holds true for more typical salaries as well though since UI rarely covers full prior compensation.
Now, these are just anecdotes, but I can honestly say that I don’t know anyone that has been laid off and simply couldn’t find work, but I know in more depressed parts of the country people can’t even find minimum wage work no matter how qualified they are. It’s plausible that the age and demographic we associate with has much to do with that. People are hurting out there, I’m not naive. I don’t know if this economy can be fixed any time soon. But is it realistic that after a full two years…Nothing? Not a single offer? And if not, what is reasonable?
Thoughts? 2 Years – Too Long, Too Short or Just Right?