The “Feel-Goodism” of Unemployment Insurance Benefit Extensions

unemployment-words-speedometer-17498695Next week the Senate will vote on a bill to extend unemployment benefits for another three months to some 1.3 million unemployed whose benefits expired on December 28.   At a cost of a whopping $6.5 billion, it is expected to produce $141 million in revenue over the next 10 years.  (Unemployment benefits are taxed, after all.)  But revenue aside, it’s all about helping the American worker…or is it?

Just on the surface, it doesn’t make much sense to add $6.5 billion to the deficit in order to reap $141 million in tax revenues, but hey –  that’s just me.  There are other reasons to extend unemployment benefits, say proponents – such as to help the unemployed stay on their feet while they are feverishly searching for a job.  But is there evidence to support that unemployment insurance leads to eventual employment?

A NBER study released last year measured the effects of the 99-week extension of unemployment benefits during American’s “Great Recession” of 2007 to 2009.  Henry Farber and Robert Valletta found that extending unemployment benefits beyond the standard 26 weeks statistically and significantly increased the unemployment duration and unemployment exits (the exits were primarily due to beneficiaries leaving the work force, not in them finding employment).

Several studies suggest that reducing the length of benefits, in fact, encourages employment.  In case the United States wants to become more like Europe desire to copy so many of its socialist and welfare tendencies, first consider a 2010 study on unemployment benefits reform in Germany.  In 2002, the German government decided to reform its generous unemployment system, in which benefits often served as a bridge between unemployment and retirement for older workers.  After the reforms were enacted in 2006 (which reduced the length of benefits, among other measures), the unemployment rate among 57 to 64 year olds fell 20 percent (although benefit lengths were reinstated in 2008).

If the goal is to promote measures that actually put people back to work, extending unemployment benefits does more harm than good.  If on the other hand, we want to simply pass a feel-good policy that furthers the debt, hurts the taxpayer and promotes structural unemployment, this $6.5 billion extension (along with many others that could follow) would do it.

Comments (25)

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  1. Lloyd says:

    If the unemployed received NO benefits…. I wonder if they would be unemployed at all.

  2. Greg says:

    “After the reforms were enacted in 2006 (which reduced the length of benefits, among other measures), the unemployment rate among 57 to 64 year olds fell 20 percent.”

    Hm, I’ve never though about it, but that statistic makes sense. The 57 to 64 age group would likely coast on unemployment benefits until they receive their 65+ benefits. That’s a good amount of money that that age group would soak up.

  3. Murphy says:

    What ever happened to the American mentality where we pick ourselves back up after a setback and get back to work?

  4. Susan says:

    For once, I’d like to see the government do something that actually makes sense.

    • Susan says:

      “Henry Farber and Robert Valletta found that extending unemployment benefits beyond the standard 26 weeks statistically and significantly increased the unemployment duration and unemployment exits.”

      Do we really even need a study to know that that’s true?

  5. Gertrude says:

    “There are other reasons to extend unemployment benefits, say proponents – such as to help the unemployed stay on their feet while they are feverishly searching for a job.”

    I would say that after several months of unemployment, we can safely assume that the unemployed person is no longer “feverishly” searching for a job.

    • Lily says:

      I do so see some upsides to unemployment benefits. There are crisis situations where a hard working American becomes unemployed and needs a little cushion while searching for a new job.

      However, these benefits should be short term and should not, under any circumstance, become a substitute for an actual income. One to two months of benefits should be the maximum.

  6. Clark says:

    “But revenue aside, it’s all about helping the American worker.”

    Actually, it’s all about helping the non-worker.

  7. eric says:

    As one of those effected by this I’ll try to be logical. I agree that extending unemployment indefinitely is a terrible idea and leads to laziness. However cutting off all extention of unemployment seems almost backwards. Many such as myself are unemployed not due to laziness but circumstance. I was injured during military service. And finding employment while injured is no easy task in our current market. As for military disability well I filed while still active duty back in march. Its now january and I currently have at least eleven more months till they will finalize. I think a short term temporary extention helps folks in situations like mine. In the meantime how about we fix the reason many are unemployed before we cut unemployment? Maybe add some more competative jobs? Fix the processes for disability claims so it doesnt take two years? I’m sure many other things could help those in my situation get integrated back into the workforce. But shouldnt that be taken care of before we shut down any assistance? 99 weeks is debateably more than I earned during my time of service. However I feel I and many earned more than 26 weeks. Remember we worked. We aren’t recieving unemployment for doing nothing.

    • Pam says:

      I am aware of the unfortunate situation going on with VA disability benefits. In fact, last year NCPA wrote a study on the problems with the VA disability system and possible solutions. It is unconscionable that the claims process is lagging so much in the VA system, even more so there than in the Social Security disability system.

      However, unemployment insurance is paid by the employer and state/federal government (taxpayers). Indirectly, it does affect workers by reducing their wages (it increases the cost of hiring for sure), it is not as simple as a person paying for an personal insurance policy and then using it when a catastrophic event happens.

      In your instance, 26 weeks may not be long enough, but that is an indictment of the VA system and the labor market. The solution does not lie with extending benefits. That is a short-term fix that tends to keep people out of the labor market for an extended period of time and eventually down the road to SSDI.

      What needs to happen is that the VA needs to be reformed and the government needs to reduce barriers to hiring. Unemployment benefits will do nothing to cover up an heavily burdened business climate.

  8. eric says:

    I don’t disagree with you pam. In fact I do agree whole heartedly. My only discontent is that a complete cut off of unemployment as things stand right now is perhaps not the best solution. I like this current proposal of a three month extension. Know that most state offices told people not to worry the extended benefits will almost definitely get approved. So many were caught underprepared. Especially with the holidays.
    Three months to Get your ducks in a row and do what needs to be done. I feel that could appease both sides.
    And again as I stated I’m not for unemployment (personally I hate sitting at home scrolling through websites and job apps. Or calling around for jobs) but there are certainly other things that could have and should already have been taken care of before this. Like the va situation as you stated previously.

  9. Eric says:

    Great news everyone!

    I know how concerned we all are that the cost of extending unemployment insurance (longer spells of unemployment) exceeds the benefit (you know, as the article says, “to help the unemployed stay on their feet while they are feverishly searching for a job.”). Well, it turns out that the cost isn’t that much. Our esteemed author, Pam Villarreal, simply misread one of the studies.

    You see, she wrote, “Henry Farber and Robert Valletta found that extending unemployment benefits beyond the standard 26 weeks statistically and significantly increased the unemployment duration,” when she meant to say “Henry Farber and Robert Valletta found an increase in the unemployment duration that was statistically significant.” Get it? The statistics were significant, not the increase. Just click on the linked word “study” in her post and you can read the study’s abstract for yourself.

    From that page you can go to the NBER’s non-technical summary where you’ll see that the study’s authors conclude “extending unemployment insurance benefits in weak labor markets has virtually no effect on the rate of job finding but, on average, unemployment spells are somewhat longer as a subset of UI recipients remain nominally unemployed rather than exit the labor force.”

    So, we can help the unemployed feed their families and pay their mortgages while they look for work and the cost doesn’t seem to be all that much to those of us who aren’t desperately trying to figure out how to pay for food and shelter.

    Great news everyone!

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