Sunday, February 28, 2010

Extended Unemployment Benefits: Untouchable?

In Jim Bunning killed the unemployment benefits extension. What now? the Christian Science Monitor has a brief discussion of an increasingly costly public expense, namely extended unemployment benefits.

This program, which now covers millions of Americans who have fallen out of the first and second tiers of coverage, have unprecedented length of benefits:

Unemployed Americans can receive up to 99 weeks of unemployment benefits – nearly two years – which is a record. The last time unemployment was this high, in the early '80s, the maximum was 55 weeks.

The background of the article is:

When Sen. Jim Bunning (R) of Kentucky held up a bill authorizing the extension of certain unemployment benefits Friday, he put the plans of hundreds of thousands of unemployed Americans on hold.

The Senator cites such factors as the lack of a mechanism to pay for this benefit in the Federal budget.

At first glance, who can be against this program?

But at second thought, these benefits may go to the second wage earner in a household, or even a third earner if for example a 24-year daughter is living with two working parents. In the two-earner scenario, what if a nurse married to a successful doctor, or a paralegal married to a successful lawyer, is laid off and cannot find work? Would it not be fairer to all the workers being taxed to pay for this income transfer to have a needs-based system after a certain point?

Where indeed is all the money coming from to pay for all the goodies the Party in power is dispensing?

After a brief surge to +5 in the Gallup hiring/not hiring dynamic (which is probably still consistent with rising unemployment rates), that number fell back to zero yesterday. The 14-day average self-reported spending the day before is at $60. That number first fell that low in February 2009. It was well over $100 two years ago. If we deflate $60 by 5% to account for two years of (say) 2.5% inflation in consumer prices, we get $57 in real dollars. Thus in real terms, self-reported discretionary spending has fallen by 50% in two years.

In our chronic depression, it's one thing to provide fellow Americans with food and shelter. It's another to engage in transfer payments almost without end either by taxation, borrowing or money-printing.

Not to be hard-hearted about things, but faced with the end of unemployment benefits, many workers will accept work that they would not take when they are receiving those benefits. Even with high unemployment, there is massive hiring each year. Unemployment rises simply when even a modest change in the ratio of employers hiring vs. firing moves adversely. There is always lots of hiring. Very generous unemployment benefits may actually increase unemployment rates. Just as owners of real estate have had to take perhaps 50% haircuts on their values, so may labor have to adjust downward.

Senator Bunning raises a good point. Unemployment compensation is not welfare. People truly out of work and in deep trouble have Medicaid, food stamps and other programs available to help them. Given the horrible financial condition of our government at all levels, and given that this extended unemployment benefit is not needs-based, and further considering that in difficult times, there still are jobs available, there should be a debate about making the welfare state justify itself rather than considering it untouchable. At the minimum we need to be realistic about the cost of doing good deeds and about providing the right incentives to work.

Copyright (C) Long Lake LLC 2010


  1. my unemployment is MY ONLY INCOME, this is unbelieveable. I have tried every single day since February 2009 to find a job THERE ARENT ANY.. I was making 60,000 per year working as a patent prosecution legal secretary, now Im in the process of trying to save my house and EAT AND PAY BILLS with the unemployment money I receive. Ive borrowed and cashed in my 401 k pension to make my mortgage payments. What is wrong with this country? Banks get bailed out and Wall Street and the brokers and the banks are thriving on the middle class losing everything they've WORKED their whole lives for. HOW DARE THEM DO THIS TO US, HOW CAN YOU DEPRIVE PEOPLE THE MONEY THAT WE'VE PUT INTO YOUR GOVERNMENT AND ALL THE PROGRAMS.. THIS IS TOTALLY WRONG in every way possible.. Im ashamed of this country on all aspects. you know what, Im going to be on welfare now thanks to this stupid, stupid decision while these jerk off senators collect their six figure salaries and Obama is a bigger jerk for allowing this to happen. THANKS FOR THE CHANGE!!

  2. The government should also learn of the psychological effects that this latest overturn of extended unemployment will have on the overall economy. We have unfortunately already seen some boat owners, through no fault of their own, lose their livelihood, and feeling in such despair commit suicide. I believed that this country was much more caring then that