Unemployment Benefits

I have friends among the ranks of the unemployed. I know one guy who has not had a full time job for almost two years now, and not for lack of trying. He has been to several out of state interviews, as well as numerous phone interviews, and he just can’t close the deal. This is probably largely due to his age (60+), but it also an indication of how tough the job market is these days.

However, I also know and have written of individuals who are working on the black market while continuing to draw unemployment (and food stamps, and welfare). In those circumstances, unemployment compensation is clearly a disincentive to taking on a regular job. So while I have some sympathy for those who struggling to find employment in today’s economy, I come down in favor of cutting off unemployment compensation after 75 weeks.

The Obama administration recently tried to push through another extension of unemployment benefits. It was stopped in the Senate by Republicans, concerned about the level of deficit spending. In the next six months, a number of the long term unemployed will lose their benefits as they expire.

I was reading the Freakonomics blog today, and I noticed an earlier post on this subject. As part of his post, one of the things Daniel Hamermesh said was

The original, and I believe continuing, purpose of unemployment insurance is to
maintain consumption of the unemployed—to prevent hardship.

I think the author has combined two different rationales in that sentence. There are two separate arguments for continuing unemployment benefits, and the Freakonomics author has folded them together. The easier argument to follow is to prevent hardship. It sucks to be unemployed. Having a little money coming in keeps food on the table and the lights turned on while looking for the next position. If you are living paycheck to paycheck, and then those paychecks are cut off, you are in deep trouble. With the current high level of unemployment, there are no jobs, so the need for the safety net is still there. In essence, this argument is “extend unemployment, because you could be next.”

The more complicated argument is that unemployment benefits maintain consumption. This is really a macroeconomic argument, as opposed to easing hardship at the microeconomic level of the household receiving benefits. The idea is that consumption drives demand, which drives production, which drives employment. Put another way, the argument is that if laid off people have no income, their spending drops to zero. When customers stop spending, businesses lay people off. If those laid off people also stop spending, the cycle will continue until no one is left standing. Basically, this boils down to “extend unemployment, or you will be next.”

After 18 months, however, both arguments begin to wear thin. Being an American citizen is a guarantee of certain inalienable rights. But it is not a guarantee of a standard of living, or even of a job. It is not the responsibility of the government to borrow money from the Chinese in order to send people checks in perpetuity. Enough is enough.