There are a lot of strong emotions on either side of the Unemployment Benefits discussion. On one hand, there are the current unemployed who are pretty miserable right now. Many can’t find a job commensurate with their skill set and prior pay rate and they’re burning through their savings. They’re sick of hearing politicians, the media and bloggers bashing them for being on the public teet after losing a job by no fault of their own. And the checks they’re receiving don’t nearly cover their actual expenses. On the other hand, we all know people who are totally scamming the system. I know a few personally. By pushing the collection period from a reasonable 26 weeks to an absurdly long 99 weeks, many Americans are questioning where it ends. If 99 weeks isn’t sufficient, why stop there? I mean, at some point, it becomes evident that the job market has shifted, skills are no longer in demand or the jobs the applicants are seeking no longer exist. So, how do you assuage both camps and introduce some semblance of “fairness” into the equation?
I can see both sides to some degree but it’s evident our current system isn’t working. To date, the only solution has been to keep extending benefits over and over but not to address the underlying issue. Because there is economic evidence that extended unemployment insurance artificially increases the unemployment rate by deterring some from taking jobs (latest study), I was thinking about a middle-ground that might satisfy all parties involved. What if unemployment benefits were treated like a loan instead of a no-look-back giveaway that leaves taxpayers and pundits pissed? The unemployed could rightly highlight that they have some skin in the game and the currently-employed that complain would feel like the general tax fund gets some of that money back. To understand why the current system provides an incentive to continue collecting benefits rather than working, check out this piece by my friend at Weakononics. I love the $1 difference example – really hits home. He had a neat idea about randomizing payments; mine is about making recipients pay something back. Here’s how it would work:
- Initial UI benefits wouldn’t change – Obviously, some guy who just lost his job and already lives on $20,000 a year is never going to pay back another $20,000 they just needed to live on after job loss. You simply can’t save enough money to ever pay that back when you’re making close to minimum wage to begin with. So, there would be some sort of cutoff where nothing would change – perhaps the initial 26 weeks the states normally provide.
- Tiered Approach – How about all these extensions? What could be done to entice a long-term unemployed to switch from a $2000 monthly check to perhaps taking a job that only pays $2,500 a month? While many would just assume keep the $2K and not work as opposed to work full-time for the equivalent of an extra $500 per month, what if now you had to pay some of that back? That $500 per month spread might look more like $1500 or more, right? So, it could be structured such that after the initial 26 weeks, sure, you could now collect UI under the federal extension program, but upon re-employment, you’d have to pay back some portion of the amount collected. Again, it would have to be low enough that it would actually be paid someday, but high enough to be meaningful. Perhaps 25% of the amount. Then, let’s say after a year, that increases further. For a guy making $100K a year and collecting say, $30K of unemployment while looking for work, would it be out of line to seek to recoup say, $10,000 of that during his 5 years back in the workforce? $2K a year? These funds could be used to help fund the next round of unemployment during the next recession. See, politicians tend to forget about the business cycle and spend high when the tax revenues are high, then ask for help during recessions. This could help smooth the volatility and cause a lot less political wrangling.
- Who REALLY Needs It? I know 2 suburban moms who lost their jobs and would just assume be a stay at home mom because the husband’s salary is sufficient, but because they seem to have timed the layoff wagon perfectly, they’re now getting an extra check for 99 weeks. They have no intention of looking for a job and stated exactly that – kind of actually bragging about the situation actually. These people aren’t struggling by any means because mom was planning on making the switch from working mom to stay-at-home mom anyway. But the tax base is basically subsidizing their Disney cruise trip and new minivan. So, what about a consideration of marital status/joint income and/or wealth? Should a spouse collect unemployment when the total family income is more than sufficient? Should millionaires collect unemployment? That was a good question posed by Financial Samurai.
There’s the notion of what used to be reasonable and acceptable contrasted with the fact that America has to start making some tough decisions. Not the decision to just “keep spending”, but the decision on where to stop spending. We are reaching the end of the road here on unconstrained deficit spending. We’ve gotta think out of the box and try to balance fairness, political will and leadership with actual results. Because, you know…we can’t touch Social Security 75 years out for people that haven’t been born yet. The images of granny with no heating oil and choosing between food and her medicine make voters cringe (no matter how far-fetched). So, here’s something we could do in the moment – NOW.
What Are Your Thoughts?
Should the Unemployed “Give Back” when They Get Back on Their Feet?