Monthly Archives: January 2014

The Case For Extending Unemployment Benefits Beyond 26 Weeks

Unemployment insurance was designed to provide a safety net by offering weekly benefits to employees who have lost their job  to enable them to modify their job skills and seek alternative employment. It is funded by payments by employers based on a percentage of payroll that is rated based on experience. During the emergency caused by the Great Recession the maximum period of eligibility to receive unemployment benefits was extended from 26 weeks to 99 weeks. The funding for such extended benefits is provided by the federal government and as a result of repeated extensions threatens to become another welfare benefit.

The extended benefits were sun-setted and expired as the end of 2013 as part of the sequester legislation. Naturally, President Obama and other liberals, who sense an opportunity to distract from the failures of Obamacare and an opportunity to buy votes, are loudly demanding that the extended benefits be reinstated. Most Republicans, who were blamed for the government shutdown, do not want to be hammered by President Obama and the liberal press for any failure to reinstate the extended benefits. However, most of them favor austerity and are looking for ways to cut the explosive growth in welfare benefits. They know that the American public is concerned with the size of the deficit and are insisting on an offsetting cut in government spending to fund the extended unemployment benefits. Do not be surprised in President Obama refuses to discuss any compromise and attempts to play the blame game for political reasons just as he did to encourage and maximize the harm from the government shutdown. 

Instead of allowing President Obama to treat the extension of benefits as a political football, Republicans should be talking about the pros and cons of extending unemployment benefits. They should argue that because of President Obama’s encouragement of welfare and failed stimulus plans, 75% of the jobs created during the recovery are part-time jobs and there are millions of people seeking jobs, a number that is far in excess of full-time, tax-paying job openings. They should acknowledge that unless we greatly expand our economy, the real level of unemployment (after adjusting for people who have given up looking for a job) may remain above historic levels for the indefinite future.

The sudden end to the program, that has previously been extended, will cause immediate hardship to many of the beneficiaries. On the other hand, every case is different. Many of the beneficiaries may have been satisfied with the benefit and were turning down less than desired employment opportunities. Others may have been cheating the system because they have left the labor market and stopped looking for work or may have accepted off-the-books employment or are earning unreported income. We should extend the term of unemployment benefits, but we should modify the unemployment laws so that extended benefits are phased out over time. We might consider gradually reducing benefits to zero over a defined period beginning after 26 weeks. This will eliminate the need for further extensions except in the event of another emergency 

There is validity to arguments that unemployment benefits provide a stimulus that supports the economic recovery. On the other hand the unemployment benefits are not the most desirable form of economic stimulus. They increase the deficit because they are spent in large part on necessities like food and clothing that increase the GDP, but do not create or sustain tax-paying jobs that generate significant tax revenues. Spending on transportation ifrastructure construction is a better way to stimulate the economy because it creates immediate tax-paying jobs and stimulates the creation of additional tax-paying jobs.

The most important reason for extending unemployment benefits is to prevent immediate hardship for those who have diligently sought employment and did not want to be forced to accept a part-time or dead-end job. However, no-one should be entitled to half-pay forever, without working. 

 

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