The Folly of Subsidizing Unemployment

[alienlovechild 75]

I want to focus here on another dimension of the Obama administration's policies: the expansion of unemployment-insurance eligibility to as much as 99 weeks from the standard 26 weeks.

The unemployment-insurance program involves a balance between compassion—providing for persons temporarily without work—and efficiency. The loss in efficiency results partly because the program subsidizes unemployment, causing insufficient job-search, job-acceptance and levels of employment. A further inefficiency concerns the distortions from the increases in taxes required to pay for the program.

In a recession, it is more likely that individual unemployment reflects weak economic conditions, rather than individual decisions to choose leisure over work. Therefore, it is reasonable during a recession to adopt a more generous unemployment-insurance program. In the past, this change entailed extensions to perhaps 39 weeks of eligibility from 26 weeks, though sometimes a bit more and typically conditioned on the employment situation in a person's state of residence. However, we have never experienced anything close to the blanket extension of eligibility to nearly two years. We have shifted toward a welfare program that resembles those in many Western European countries.

The administration has argued that the more generous unemployment-insurance program could not have had much impact on the unemployment rate because the recession is so severe that jobs are unavailable for many people. This perspective is odd on its face because, even at the worst of the downturn, the U.S. labor market featured a tremendous amount of turnover in the form of large numbers of persons hired and separated every month.

For example, the Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.

Moreover, although the peak unemployment rate (thus far) of 10.1% in October 2009 is very disturbing, the rate was even higher in the 1982 recession (10.8% in November-December 1982). Thus, there is no reason to think that the United States is in a new world in which incentives provided by more generous unemployment-insurance programs do not matter much for unemployment.

Another reason to be skeptical about the administration's stance is that generous unemployment-insurance programs have been found to raise unemployment in many Western European countries in which unemployment rates have been far higher than the current U.S. rate. In Europe, the influence has worked particularly through increases in long-term unemployment. So the key question is what happened to long-term unemployment in the United States during the current recession?

To begin with a historical perspective, in the 1982 recession the peak unemployment rate of 10.8% in November-December 1982 corresponded to a mean duration of unemployment of 17.6 weeks and a share of long-term unemployment (those unemployed more than 26 weeks) of 20.4%. Long-term unemployment peaked later, in July 1983, when the unemployment rate had fallen to 9.4%. At that point, the mean duration of unemployment reached 21.2 weeks and the share of long-term unemployment was 24.5%. These numbers are the highest observed in the post-World War II period until recently. Thus, we can think of previous recessions (including those in 2001, 1990-91 and before 1982) as featuring a mean duration of unemployment of less than 21 weeks and a share of long-term unemployment of less than 25%.

These numbers provide a stark contrast with joblessness today. The peak unemployment rate of 10.1% in October 2009 corresponded to a mean duration of unemployment of 27.2 weeks and a share of long-term unemployment of 36%. The duration of unemployment peaked (thus far) at 35.2 weeks in June 2010, when the share of long-term unemployment in the total reached a remarkable 46.2%. These numbers are way above the ceilings of 21 weeks and 25% share applicable to previous post-World War II recessions. The dramatic expansion of unemployment-insurance eligibility to 99 weeks is almost surely the culprit.

To get a rough quantitative estimate of the implications for the unemployment rate, suppose that the expansion of unemployment-insurance coverage to 99 weeks had not occurred and—I assume—the share of long-term unemployment had equaled the peak value of 24.5% observed in July 1983. Then, if the number of unemployed 26 weeks or less in June 2010 had still equaled the observed value of 7.9 million, the total number of unemployed would have been 10.4 million rather than 14.6 million. If the labor force still equaled the observed value (153.7 million), the unemployment rate would have been 6.8% rather than 9.5%.

http://www.visajourney.com/forums/index.php?app=forums&module=post&section=post&do=new_post&f=16

[ready4ONE 5,400]

I am sure this is a very interesting argument to those of us who are employed. But for those who aren't being told, despite all of the evidence to the contrary, 'this is all your fault you lazy, society sucking leach' is likely pretty offensive.

When you point out a single fault in the current American business model perhaps you will gain a scintilla of credibility. Until then, you just seem to be a broken record focused solely on the less fortunate, ignoring all of the outside factors that assist in creating the misery.

Are there leaches on the public dole? Sure.

Are there parasites in the US business community making a mint destroying the ability of many to earn a living? Apparently not in your one track mind.

[thongd4me 69]

Just another unfunded (I didn't say "unfounded" - I mean they ain't got the money to pay for it!) entitlement.

See also social security, medicaire, medicaid and veterans benefits - not saying these programs aren't

beneficial to the beneficiaries, just that the government doesn't have the real cash to cover them so

"Helicopter Ben" starts printing money and charges banks 0% to borrow from the government.

[Mr. Big Dog 10,747]

I know it hurts but here's a bit of context to the discussion. Those railing against the extension today have been quite supportive of the very same thing in years past. Of course, then it was them running the show and that made it alright.

Here's a look a the unemployment compensation extensions passed by Congress and signed into law by President George W. Bush.

Unemployment Compensation Extension Act of 2008 (HR 6867): This bill, which extended benefits, passed the House on Oct. 3, 2008, by a vote of 368 to 28. Of the 170 voting Republicans, 142 or 84 percent supported the extension. The measure passed the Senate by a voice vote, a parliamentary often used when legislation is not controversial.

Supplemental Appropriations Act of 2008 (HR 2642): This bill provided federal money to states to make emergency unemployment compensation payments to workers who had exhausted all rights to regular compensation. On final passage, it sailed through the House by a vote of 416 to 12, with 186 or 95 percent of voting Republicans supporting it. It passed the Senate 92 to 6. Among Republicans, 42 of 48 supported the measure.

Katrina Emergency Assistance Act of 2006 (S 1777): This bill, which made unemployment assistance available to people affected by Hurricane Katrina, passed by voice vote in the House and by unanimous consent in the Senate.

Unemployment Compensation Amendments of 2003 (HR 2185): This bill, which extended unemployment benefits by 26 weeks, passed overwhelmingly in the House by a vote of 409 to 19. Among Republicans, 204 or 91 percent voted in favor of the measure. The bill passed by unanimous consent in the Senate.

Emergency Wartime Supplemental Appropriations Act of 2003 (HR 1559): This bill provided extended benefits for displaced airline and related workers in the aftermath of the terrorist attacks of Sept. 11, 2001. It passed the House by a voice vote and the Senate with unanimous consent.

P.L. 108-1 (S 23): This bill, which provided for a five-month extension of the Temporary Extended Unemployment Compensation Act of 2002, passed the House by a vote of 416 to 4. Among 222 voting Republicans, 218 supported the measure.

Job Creation and Worker Assistance Act of 2002 (HR 3090): This bill, which extended unemployment benefits for up to 13 weeks for those who had exhausted their 26 weeks of regular coverage, passed the House by a vote of 417 to 3. All 218 voting Republicans supported it. In the Senate, the vote was 85 to 9, with only one Republican opposing the bill.

On the question of the Obama's statement that, in the Bush years, "Republican senators voted several times to extend emergency unemployment benefits," the president is correct.

[alienlovechild 75]

I am sure this is a very interesting argument to those of us who are employed. But for those who aren't being told, despite all of the evidence to the contrary, 'this is all your fault you lazy, society sucking leach' is likely pretty offensive.

When you point out a single fault in the current American business model perhaps you will gain a scintilla of credibility. Until then, you just seem to be a broken record focused solely on the less fortunate, ignoring all of the outside factors that assist in creating the misery.

Are there parasites in the US business community making a mint destroying the ability of many to earn a living? Apparently not in your one track mind.

I didn't write the article. Here's the correct link.

http://online.wsj.com/article/SB10001424052748703959704575454431457720188.html

[Danno 1,228]

I know of one person who is on unemployment, he has even admitted he is riding it for as long as it will last I know for a fact he does not look for work.

Truth is, we are in the Obama economy now..... people have to accept a lower wage if they are going to find work.

[mawilson 2,133]

I know of one person who is on unemployment, he has even admitted he is riding it for as long as it will last I know for a fact he does not look for work.

I know (of) several people like that.

I'm sure some here will dismiss it as anecdotal evidence, but it still counts for something.

[The_Dude 1,142]

I know of one person who is on unemployment, he has even admitted he is riding it for as long as it will last I know for a fact he does not look for work.

Truth is, we are in the Obama economy now..... people have to accept a lower wage if they are going to find work.

Yes Danno, the economy is in the state it is in today because of Obama, not deregulation, or any of the misconduct of financial institutions over the past 3 decades.

[mawilson 2,133]

Yes Danno, the economy is in the state it is in today because of Obama, not deregulation, or any of the misconduct of financial institutions over the past 3 decades.

It's been two years - how long before Obama "owns it"? Or will it still be Bush's fault 10 years from now?

[The_Dude 1,142]

It's been two years - how long before Obama "owns it"? Or will it still be Bush's fault 10 years from now?

Danno seems to think the entire downturn in the economy is Obamas fault. Yes, it is his job to fix it, but you can't just toss it all on him and not take into account the decades of factors that led up to it.

[ready4ONE 5,400]

I know of one person who is on unemployment, he has even admitted he is riding it for as long as it will last I know for a fact he does not look for work.

Truth is, we are in the Obama economy now..... people have to accept a lower wage if they are going to find work.

My ex rode the unemployment pony till it ran out a few months ago too. I am sure there is abuse but it is hardly universal, nor are the unemployed, underemployed etc solely to blame for all the RWN's see wrong with America. Problems such as those with our economy are complex, too complex to lay blame on any single category of persons or either big political party. And call it a dodge if you must, predate Obama and company.

It's been two years - how long before Obama "owns it"? Or will it still be Bush's fault 10 years from now?

Newsflash! The systemic problems pre-date Bush too...

[Gary and Alla 3,694]

I am sure this is a very interesting argument to those of us who are employed. But for those who aren't being told, despite all of the evidence to the contrary, 'this is all your fault you lazy, society sucking leach' is likely pretty offensive.

When you point out a single fault in the current American business model perhaps you will gain a scintilla of credibility. Until then, you just seem to be a broken record focused solely on the less fortunate, ignoring all of the outside factors that assist in creating the misery.

Are there leaches on the public dole? Sure.

Are there parasites in the US business community making a mint destroying the ability of many to earn a living? Apparently not in your one track mind.

The problem with your argument is that the goal line keeps moving. At what point, exactly, does a person cease to be "unemployed" and start to be a bum? 100 weeks?

I have been in business long eough to know that deadlines get results. Bonuses get results. Whenever there have been natural disasters, for example, bonuses paid for getting the repair work done sooner result in the repair work getting done sooner. Remember when Sadam Hussien set fire to the oil wells? They said it could take "years" to extinguish the fires. The Red Adair compant was offered bonuses for every fire they put out in advance of a particular date...they were ALL put out in a few weeks.

So what. Well, instead of giving people, roughly, half pay for 52 or 99 weeks. Why not give them FULL pay for 26 weeks with a bonus equal to another 26 weeks IF they accept a FULL TIME job prior to, say, week 20. Why not? A guy could accept a job paying half what he made before (better than continuing the unemployment) receive the bonus which can cushion him/her until they find better work. It looks better to be working than unemployed and any kind of job can provide access to other jobs and opportunities. It, basically, an acknowledgement that working is better than not working. Aguy who had a pretty good full time job in Vermont can collect $450 per week for 99 weeks, PLUS he is eligible for FREE state medical care, food stamps up to $400 per month for a family of four, free school lunches and breakfasts (I pay $100 per month for this for one student. Add it up, this guy is making $2500 per month or more on unemployment. Minimum wage is $8.06 per hour. Unemployment pays $11 per hour plus great benefits. He is making $30,000 + per year doing nothing! If he has infants he makes much more! The free medical care is for the whole family with $1 deductible prescriptions! You can't get better health insurance from a Hospital or even Obamacare! Who wants to go back to work? Why?

Instead, pay the guy $900 per week (or even 1200 per week) But it ENDS, absolutely, at 26 weeks. If he takes a job making even minimum wage (8.06/hr) before week 20 he gets his 900 x 26 + weeks. Some $30,000 or more! It can be paid in weekly benefits guaranteed for the full amount to prevent less than clever people from buying a new Nissan 350Z if you so prefer, I really don't care. Exempt the BONUS from income tax. I am suggesting supplementing WORK because work is GOOD. Idleness is NOT good.

Deadlines and bonuses get RESULTS, that is why they are universally used by for-profit businesses as incentives for employees to perform. It works.

Edited August 31, 2010 by Gary and Alla

[Gary and Alla 3,694]

I am sure this is a very interesting argument to those of us who are employed. But for those who aren't being told, despite all of the evidence to the contrary, 'this is all your fault you lazy, society sucking leach' is likely pretty offensive.

When you point out a single fault in the current American business model perhaps you will gain a scintilla of credibility. Until then, you just seem to be a broken record focused solely on the less fortunate, ignoring all of the outside factors that assist in creating the misery.

Are there leaches on the public dole? Sure.

Are there parasites in the US business community making a mint destroying the ability of many to earn a living? Apparently not in your one track mind.

and the WORST parasites in the business community are the businesses that exploit illegal aliens. They avoid paying minimum wage, social security, medicare, unemployment, workers compensation, safety considerations, benefits, medical care...you name it, they pocket the cash. Yet you see NOTHING from the current administration (or bush's for that matter) that says HAMMER these businesses and make them PAY such scarey amounts they would never DARE to even consider hiring an illegal alien.

what gives?

[Danno 1,228]

Danno seems to think the entire downturn in the economy is Obamas fault. Yes, it is his job to fix it, but you can't just toss it all on him and not take into account the decades of factors that led up to it.

Let me correct you Bro, I don't think the "entire downturn" is Obamas fault, I do believe we are well into the "Obama economy" which means ..... realistically speaking peoples future will not be brighter for some time.

PLainly put.... Obama is digging us deeper and if I were unemployed, I would expect to make much less in my next job.

[ready4ONE 5,400]

Let me correct you Bro, I don't think the "entire downturn" is Obamas fault, I do believe we are well into the "Obama economy" which means ..... realistically speaking peoples future will not be brighter for some time.

PLainly put.... Obama is digging us deeper and if I were unemployed, I would expect to make much less in my next job.

Since your claim pre-dates Obamas inauguration we can all feel free to disregard the above dissembling.