Issue 9: Should unemployment benefits be extended?
Brief synopsis: The Social Security Act of 1935 also created the unemployment compensation program (formally, the Federal-State Unemployment Compensation Program). The unemployment compensation program provides income assistance to unemployed workers, while it also helps stabilize the economy. The issue we need to talk about/discuss or address today is whether the unemployment benefits should or should not be extended beyond the basic period of 26 weeks. Rebecca Blank thinks it should be extended, while Alex Brill thinks otherwise. Their reasons are the following.
Rebecca Blank: She believes that the government has waited too long in past recessions and that waiting until after a recession has ended to enact extended benefits doesn’t help the unemployed people or the economy. She mentions that the “unusually high rates of long-term unemployment in the current economy suggest that a growing share of the unemployed who receive unemployment benefits will exhaust them without finding a job” (Bonello 171).
She believes that extending unemployment benefits will assist the long-term unemployed as they continue to search for work. She addresses the need for unemployment insurance, as well.
Alex Brill: He thinks “too much unemployment insurance will lead to an increased duration of unemployment through a decreased incentive to find a job. This will lead to a higher unemployment rate and lower levels of economic output and growth” (176). He cites Martin Feldstein, Harvard Prof. of Economics, who was quoted as saying, “while raising unemployment benefits or extending the duration of benefits beyond 26 weeks would help some individuals… it would also create undesirable incentives for individuals to delay returning to work” (177). In short, Mr. Brill thinks extending unemployment benefits doesn’t motivate the unemployed people to go back to work and that this kind of “solution” is only temporary. In other words, it doesn’t really fix the problem which is lowering the unemployment rates in various different states in the U.S.
I didn’t want to be too redundant so I’ve intentionally omitted in my synopsis above the data provided in our text.
The main question for us to address today is whether unemployment benefits should or should not be extended?
Sub questions we can ask ourselves additionally are if you think it should be extended then why? If not, then why not?
Do you have other suggestions? Any alternatives (similar to what Alex Brill suggests on page 178)? Any ideas or relevant comments?
Economic Issues and Public Policies 
The latest unemployment insurance claims report can be found at: http://www.dol.gov/opa/media/press/eta/ui/eta20090759.htm
I personally found the info under “Unadjusted Data” useful/resourceful (where it lists the states where extended benefits were available), since our text doesn’t list the states.
As to my response to today’s topic/issue…
I know that on average it takes months (6-8 months or more at times) to find a new job.
For the unemployed people who actually apply and receive the unemployment benefits, it’s their only source of “income” (for the lack of a better/more appropriate technical term). I think for some deserving people or benefits recipients, it’s fine to offer the extended benefits. I found one video which denied benefits at all to drug users or undeserving candidates, etc.
I’m not sure how many states use drug testing or the like to weed out certain people, but it could be a good way/method to distribute unemployment benefits only to deserving people/candidates.
Our text says that “in almost all states, benefits are funded exclusively by taxes on employers” (168).
Last semester when I took Macroecon (with wonderFUL prof. Brenda Priebe), I was diligently reading the WSJ on a daily basis and I remember reading numerous articles which reported that many states were running out of funds to meet the demands of the unemployment benefits applicants. In many states, too many new applicants applied for the unemployment benefits because of the recession/economic downturn. I think this kind of trend must affect each state’s ability to extend benefits to current recipients.
I don’t know much about the unemployment benefits and exactly how it’s funded in detail.
While I think that helping the unemployed people financially is a good thing (for the recipients and the economy) but I also think that the money spent on them should have some kind of multiplier effect (similar to what Keynes suggests in General Theory. I didn’t read the book in its entirety because it was way beyond my level of logic or IQ to comprehend 😦 but the core concept, interpreted by intelligent online translators and professors, was fairly easy to understand).
While I was reading page 178, I thought of the following. As I’ve mentioned above, I am not at all against providing the unemployment benefits to certain qualifying candidates/recipients/beneficiaries. Sometimes people need help (money comes and goes/sometimes we have or make a lot of money and sometimes we don’t have or make enough to get by comfortably).
However, the funds or benefits given to them, the unemployed recipients, should work as an investment of some kind. On page 178, Brill mentions about Insurance Savings Accounts (UISAs) “where workers would contribute a share of their wages and be allowed to draw from the account should they become unemployed.”
This is a good idea but for those currently unemployed people who didn’t set up this account
and receiving benefits, REVERSE UISAs might be a good idea to suggest. The idea is similar to reverse mortgage… I’m not so sure whether something like this (reverse UISA) even already exists… but it’s something I happened to think of while reading about UISAs on page 178.
Let me explain what I mean by reverse UISAs.
For those who currently receive the benefits and the extended benefits, whatever money they receive should not be completely free. It should be like a loan (similar to school gov’t loans, very low interest, flexible, etc.) Perhaps, then people will not take “advantage” of the benefits and it will not encourage them to live off of benefits or delay their willingness to return to work ASAP. Rebecca Blank mentions about the “discouraged worker” effect on page 171. I heard about this and I do think that people desperately looking for work CAN get discouraged if it takes too long for them to find work. (BTW, what Blank mentions on pages 169-170, with all due respect… I have to confess, it was TMI or too much info for me. I thought it was immaterial. I kind of got lost in the midst of it. Last semester in Macroecon, I learned about the unemployment rate and previous recessions, etc. My basis understanding of the unemployment rate was pretty simple. People not looking for work are not included in calculating the unemployment rate and the unemployment stats are released on the first Friday of each month, etc.
Blank talks about younger men in jail/prison and other things on page 170 and I just got confused momentarily. Sorry, I just thought I’d mention it and vent! in case other people thought the same…)
Ok, going back to finishing my point on my eureka alternative suggestion…
One of the problems mentioned by both Brill and Blank (and many others including Harvard Econ prof. Martin Feldstein and many others on-line on this matter) is that the benefits and extending benefits by 26 wks or xyz wks would create undesirable side effects such as people not wanting to return to work. If the money benefit recipients receive are like a loan and they are expected to pay back in the future then people will be more encouraged to get back to work and start working ASAP and not completely rely on the unemployment benefit checks. I understand that if this kind of system were to be implemented then it would not be called benefits, in the first place. I can’t provide the specific logistics of how this kind of alternative suggestion/system would work but, like I said before or above, it’s something I happened to think of while I was reading page 178 which is where Brill talks about “Alternatives to current unemployment insurance prog.” The idea is to psychologically discourage candidates or recipients who receive benefits from completely relying on the unemployment benefits.
Extending benefits, in my humble opinion, further encourages those recipients to continue to rely on gov’t subsidy programs/benefits, etc.
Or perhaps, instead of giving them free money or in addition to giving them benefits, it might be better to provide them some job-related hands-on training which could bolster their chances of getting a job ASAP. Technical School vouchers (free tuition, etc.) might work well, too, for certain individuals who want more education or training. People, in general, tend to go back to school in economically tough times, especially. Education requires time investment but despite the opportunity cost of getting an education (or further training), I think it’s well worth it. It’s a good long-term investment.
Finally, to re-touch on the reverse insurance prog… I think it could work if it’s similar to gov’t school loans (not grants). If the recipients are expected to pay back the money (whether it’s only 10 % or 50% of what they “borrowed”) that was given to them in desperate times, then it will encourage them to be self-sufficient and independent ASAP.
I like the following quote or famous Chinese proverb, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”
Providing the unemployment benefits is like giving a man a fish and you only feed him temporarily (i.e. a day or few days). However, providing much-needed or desired education or training is teaching a man how to fish and feeding him forever. I think the latte method should be more beneficial to both parties; the benefit recipients/beneficiaries and the gov’t. This will automatically and eventually take care of the economy. I don’t know much about Macroeconomics… yet. I’m sure people like Ben Bernake and other professional economists and experts probably have already thought of something like this. If they already have then I wonder why it is not or anything similar to it has not already been implemented. Lastly, I don’t know who will be the next Fed Chairman but I think Ben Bernanke should stay for one more term. I hope! (He may not even want the job 🙂 but I think he a valuable asset and we need someone like him to help lift us out of recession ASAP).
Really interesting stuff. I love the idea about essentially creating unemployment loans. I too agree that simply extending benefits, although a very nice gesture, does nothing in economic terms to help the country. Essentially it comes down to the government spending more money it does have. We just cannot afford it anymore. I posted a video where one of the economists in it, for the lack of a better term, essentially says that for the short term, increasing unemployment benefits or extending them is great. In the long run, though, they will destroy the economy along with all our other spending programs.
Thanks jinc1019 for your comments!
I didn’t talk about budget deficit in my comments but you’re right, indeed. I also think that it may very well come down to the gov’t spending more money (already running short), ultimately. (Hence, my unemployment loan system suggestion 🙂 I mean, if the gov’t is going to spend money on the unemployment benefits then might as well make it an “investment” of some sort and expect a certain percentage of return on their investment. You know? If recipients can’t pay back then that’s a diff’t issue but at least it will help discourage the recipients from getting too comfortable receiving benefits or relying too much on the gov’t. Sometimes, people need to be pushed out of the nest.
Anyway, thanks for your comments. I agree w/you. You’re right on the money! $$
Great information!! I think the drug testing idea is great.
Talk about a relevant issue! Unemployment has certainly been a hot-button topic, especially now that joblessness is at a 26-year high (http://www.msnbc.msn.com/id/31704515/ns/business-stocks_and_economy/ ).
Unemployment is something that will happen to almost every working person at some point; it seems to be a fact of life, and becoming even more common due to the global economic downturn. Luckily, for those that meet the qualifications, unemployment benefits can take some of the economic burden while they search for new employment.
All and all, I believe that unemployment benefits are necessary, but I am against the benefits extension. Lest anyone think I’m heartless, let me explain why. This extension means that a person has a total of 39 weeks of unemployment—almost a full year. And while I think that the extra time would be beneficial for job seekers in this tight job market, the states simply don’t have the money to support the increase. Frankly, many states could barely afford to pay out unemployment benefits before the increase. According to an article from ProPublica, “Fourteen states have already run out of funds to pay unemployment insurance claims and taken out a total of more than $8 billion in federal loans to cover the shortfalls. At least 18 more states are in danger of exhausting their unemployment insurance trust funds” (http://www.propublica.org/feature/states-unemployment-insurance-flounder-after-years-of-poor-planning-604 ). And, as you can imagine, all of these federal loans mean that that taxpayers are going to be footing the bill.
As for alternatives, Feldstein and Altman’s UISAs are an interesting idea, but I don’t think it’s the best solution. As we’ve discussed with topics such as PRAs and HSAs, not everyone has money to set aside. I cannot imagine making $7 an hour trying to simply pay bills, let alone put money into an unemployment insurance savings account. It just wouldn’t work. And while I liked the idea of employer-purchased private insurance, yet again, it all comes down to money. Not every employer would be able to afford the coverage(i.e. small businesses that can’t even afford to offer PTO or heath insurance). And, for companies that have high turnover (such as Wal-Mart), would it even be right to make them pay for coverage for employees that are more than likely going to leave within the first year?
I really have no idea what a better alternative is; as with most of these issues we’ve discussed, many of the alternatives leave someone out or leaves a coverage gap. My only thought is that something should be done about the way the states manage their unemployment funds. The reason so many went broke was due to poor management, not necessarily because of the recession. While the economy was good these states should have been working on building up some kind of cushion or reserve in their unemployment trusts. To again quote the article I referenced earlier, “At the end of 2007, after years of increasing employment and before the current recession hit, 33 states had less than a year’s worth of reserves in their trust funds, even though many experts recommend 18 months’ worth. Four states had negative balances in the years before the recession started.” That’s scary.
You are absolutely right about the poor management. All of these government programs are poorly managed. The problem is that too many states spend the money on projects unrelated to the actual program the funds were designed to protect. In other cases, governments take excess unemployment funds in good surplus years and spend it frivilously on other endeavors when they should be saving it for bad years like the one we are in now and will be next year.
Thanks Sara for your comments!
I agree w/you. We’ll all face w/unemployment, at least once, at some point in our lives. I’m sure you also remember from our text from Macroecon last semester that the unemployment rate will never be zero (historically, the lowest fig. I remember was like 3.8%. I ordered the on-line version of the text so I can’t refer back right now or cite properly…) Unemployment rates can be higher than 10% like in California and Michigan.
I also agree w/you on the other points you made about poor management, extension, and especially that UISAs aren’t good alternatives.
Not many people earn enough to put certain money aside. That alternative is not realistic.
Lastly, as you said, states should have done a better job saving more money in advance.
Very good comments/points! Thanks Sara.
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P.S. CA’s Gov. Schwarzenegger held a press conference regarding state budget crisis. http://gov.ca.gov/
He briefly talks about multiple people/ certain people w/multiple identities getting benefits. Maybe for certain states like CA, they need to be more vigilant. For anyone interested, check it out at the URL above.
Poor management is right. It should have been common sense that the economy was going to atleast level off or retract after the “boom” we saw a few years ago. Where did all the revenue go??
Since we are talking about government budgets, I need to vent a little. From 2007 to the present, the value of our home has decreased by over 16%. However, our real estate taxes are still set at the “boom” value. I know that it is unrealistic to think they can afford to cut everyone’s taxes back to a value that represents the current market but WHY??? Why do they have the right to tax us for more than our house is worth? I am sure if the taxpayers demand an adjustment the county would lower the value of the real estate and increase the tax rate to compensate.
Should unemployment benefits be extended? I realize my position on many of these economic issues are becoming redundent, but my reasoning applies to this issue as well as many other issues. There is absolutely no money for extending unemployment benefits. At this point in time, we need to be cutting from our budget, not adding on. How will extending unemployment benefits help the economy? I can understand why many people think it’s the right thing to do. I would love to help out Americans more who are out of work, but there just isn’t any wealth available for this.
In addition to the basic economics of it all, Alex Brill brings up some very interesting points about production. If you are unemployed and your unemployment is extended, y are less motivated to find work as quickly as you would have if it were ending soon. Alex Brill discusses in detail the the “Stimulus Digression”. Essentially he argues that although providing unemployment benefits helps aggregate supply by giving money to those who normally would not hve any, it hurts total supply because there are less workers working. The economy runs th way it does for a reason, and some unemployment benefits help to soften the blow when unemployment hits. This factor gets thrown out the window though when unemployment benefits reach a point where they are keeping workers out of the work force.
As I said previously, the program cannot exist. Here is a debate on the issue on Fox News Business:http://justinhaskins.wordpress.com/2009/07/02/unemployment-benefits/
I AGREE WITH ALEX BRILL. I BELIEVE UNEMPLOYMENT BENEFITSCOULD BE EXTENDED FOR 2-3 WEEKS AT THE MOST. BUT THESE BENEFITS HAVE BEEN KNOWN TO MAKE SOME UNEMPLOYED GET COMFORTABLE RECIEVING MONEY AND SOME IT ACTUALLY HELPS COVER TO PAY THE BILLS. EXTENDED BENEFITS COULD BE EXCELLENT FOR HOME OWNERS AND BAD FOR SHOPAHOLICS.
Thanks raycain for your comments!
Your last sentence “… excellent for home owners and bad for shopaholics” made me laugh for a few seconds! 🙂 Ha ha ha. Thanks! I agree. Any free money is bad for shopaholics. I’m planning to see “confessions of a shopaholic” over the 4th of July weekend. Anyways, extending benefits for 2-3 weeks isn’t really long if you think about it, you know? (Judging by how fast time flies!) I do think that those truly deserving recipients deserve to receive extended benefits… but the extra money the gov’t spends on those individuals should have some kind of multiplier effect either on them or the economy, or preferably both. It’s probably easier said than done… I just think the money should not be wasted… you know? Thanks for posting a funny comment. I enjoyed it very much ! 🙂
Have a happy 4th of July!
DOES THE COUNTRY HAVE THE FUNDS TO EXTEND ANY GOVERNMENT PROGRAM? IF SO SHOULD UNEMPLOYMENT BE TAKEN INTO CONSIDERATION?
At this point, I feel like we really don’t have any money for much of anything. But, apparently, that’s not stopping the government from spending it. The funny thing is that many states didn’t have the money for regular unemployment, let alone extending it. Here’s a map that shows the states that are out of money and had to take out loans, those on the verge of needing loans (including Virginia), and those that are alright: http://www.propublica.org/special/is-your-states-unemployment-system-in-danger-603
Unfortunately, the government is so far into debt that the only responsible thing to do would be to cut spending, not increase it. Barack Obama has committed us to more spending in his first 7 months than every single president prior combined, including George W. Bush.
No they don’t have the funds. If the government had extra funds maybe they should apply them to the debt versus making new debt.
I would have to say no to extending unemployment benefits. How much more can the American taxpayer take? With the unemployment rate reaching 9.5%, we are in a crisis that is going to behard to recover from.
Coming from 2 generations of tradesman in the construction industry, there were many times that, in a given year, someone was unemployed more than employed. This made it very difficult to make a living. One of the big problems I see with this industry is abuse of the system. To many, “mailbox money” is more appealing than going out finding a job.
In my individual case, unemployment would not even come close to paying my bills. I would have to work several low paying jobs versus drawing a check from the government. I guess I am the only one to blame for being in this situation but with tuition, house payment, daycare, preparing for our childrens college,etc,etc, the money has to be made. If I become unable to work for a period of time, I did have the foresight to save enough for these times.
To summarize, I think unemployment benefits are a great tool provided by the government. However, I wish it could be monitored more for abuse. If only the legitmate claims were filed (people who truly could not earn a salary atleast matching unemployment) the system would be in a much better situation. Finally, with the national debt out of control, we just can’t afford to extend the benefits.
Thanks kb3na for your comments! Many thanks for sharing your story briefly also. Between hefty tuition, bills(!), so many other things, etc. it’s difficult to manage/juggle/multi-task at times economically and time management-wise. I think all of your classmates, including myself, can empathize w/you on that note 100%.
I agree w/ you that the gov’t money isn’t enough and “to many, ‘mailbox money’ is more appealing than going out finding a job.” Unemployment benefits are a great tool, as you said. It’s great for deserving people who need assistance in economically difficult times. It’s those who abuse, (people w/multiple identities CA’s Governor points out in the video at: http://gov.ca.gov/ ) those bad apples, that should be monitored and eventually eliminated.
Thanks for your post! Another great comment and right on the money!
Have a great 4th of July!
Thanks Vivienne. The issues we discuss are so relevant to our daily lives.
You have a great 4th also!!!
I think an extension to unemployment benefits is counterproductive as it will lead to a higher unemployment rate in the long run. An interesting article, (http://www.heritage.org/research/economy/cda08-13.cfm) talks about how the extended unemployment insurance is not an economic stimulus for the recession. In short, the first problem with extending the insurance period to 39 weeks is that it “overestimates the amount that finances new consumption. The 13-week extension already passed by Congress is estimated to have increased annual GDP by an average of $0.25 for each $1 spent while extended benefits are in effect. Increasing the duration by an additional 7 weeks to 20 weeks would depress the economy, causing GDP to decrease by $1.7 billion.” When it comes down to the numbers, a further extension simply just does not work (not to mention we don’t have the money to fund it!!)
As pointed our in our text, extended the period of benefits received does not create an incentive for the unemployed person to seek a job. With decreased pressure, the unemployed person with extended benefits looks less aggressively for a new job versus one who does not have these extra benefits to rely on. It is pretty much common sense. According to many labor economists in the article I cited before, “workers do not create economic wealth during the additional weeks they remain unemployed. They save and consume less because UI insurance replaces only a portion of their wages. Labor markets become less flexible because it takes more time for workers to transition from one industry or state to another. This hinders economic growth.”
Let’s start facing the cold facts and stop spending money we do not have on programs that are damaging the economy.
I agree that extending benefits would cripple our economy in the long-term, however the concepts of loans and drug-testing (or other prereqs) make me consider the possibilities of helping out during a recession. I think Blank underestimates the effects of extending benefits, and her critique that we’ve been slow on the draw ignores the true costs of using such a measure. If our goal is to help the economy rebound, spending money to extend benefits is not going to help.