Do unemployment benefits encourage people to avoid working?

This is from the radically-leftist New York Times. (H/T ECM)


Before this recession, most economists probably thought that some amount of unemployment benefits were just and compassionate, and offered a sense of security even to people who were lucky enough to retain their jobs, despite the fact that the program would raise unemployment rates and reduce both employment and economic output.

In other words, unemployment benefits shrink the economy to some degree, but shrinking the economy a bit may be a price worth paying.

Unemployment benefits were thought to reduce employment and output because, by definition, working people were ineligible for the benefits. In particular, an unemployed person who finds and starts a new job, or returns to working at his previous job, is supposed to give up his unemployment benefits. Economists had found that a large fraction of unemployed people delay going back to work solely because the unemployment insurance program was paying them for not working.

Fewer people working means a lower employment rate, and less output because unemployed people are not yet contributing to production.

The recession has seen a number of economists ignore prior findings on unemployment insurance, at least as long as this recession continues. For example, in evaluating the stimulus law economists at the nonpartisan Congressional Budget Office assumed that the law would raise gross domestic product, and took no account of the fact that the unemployment insurance and other provisions of the stimulus law give people incentives to work less.

Here’s a new study explaining how the “generosity” of the radical left actually encourages people to avoid working, and to remain dependent on the government for their income.

A study published by two labor economists, Stepan Jurajda and Frederick J. Tannery, looked at employment histories for unemployment insurance recipients in Pittsburgh in the early 1980s. Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years.

The chart below summarizes their findings for Pittsburgh.

The chart displays the fraction of persons (in Pittsburgh) receiving unemployment benefits who began working again, as a function of the number of weeks until their unemployment benefits were scheduled to be exhausted. For example, a “hazard” value of “0.04″ for week “-14″ means that, among unemployed persons with 14 weeks remaining until their benefit exhaustion date, 4 percent of them either began working a new job or returned to their previous job.

The chart:

Unemployment offers a disincentive to find work
Unemployment offers a disincentive to find work

That chart basically shows the breaking down of the American working spirit by the radical left – making large segments of the American population dependent on government. This isn’t good for the producers, and it isn’t good for unemployed people to be out of work by choice. (Although to be sure, many many unemployed people are not unemployed by choice).

9 thoughts on “Do unemployment benefits encourage people to avoid working?”

  1. This is all good if there are good jobs available. For a person to take a job that can not support his family does not make sense. It reminds me of the buisness that takes on a client that can’t pay. If they did that with everyone the results are obvious. While I agree that at some point in time people need to get back into the work field, this recovery is just starting. If the Feds do not extend unemployment benifits we only create more strife, and problems. The president is trying to stimulate the economy. If people have money, especially the lower income persons, they spend it. That encourages more factory work etc. We gave Wall Street Billions hoping if not expecting them to use it to stimulate the economy, instead they sat on the money expanding the resession. Years ago it was ADC and Welfare recipients causeing all the economic problems, now it’s the unemployed. We always try to find a fall guy. Today, it’s the fault of the unemployed.
    We need to get the economy back on its feet before kicking the skids out from under the unemployed. In order for them to go to work, first there has to be decient jobs that allow for them to support their family.


    1. Horton, they always have the option of working 2 mediocre jobs. It’s a work ethic they lack. Why work when I can get it for free?

      If they know they have money coming in, why would they work? Cut off the supply and the urgency builds. Too many people looking for someone else to help to the point where its expected.

      What did people do when UI didn’y exist? Did they starve, or did they bust their ass doing as many jobs as it takes to pay the bills and fill the stomachs? Government has killed integrity.


  2. The “radically leftist” New York Times takes the positions it does because it is editorially bound to print news that is sourced and substantiated through extensive fact-checking. The paper, which has won 108 Pulitzer prizes in journalism, doesn’t engage in the wild assertions that the sources you often rely on, Wintery. It’s “leftist” tilt, in other words, is simply the result of reporting on facts, not theories. Sure, you can read those too–on the paper’s blogs and on its opinion pages. But that’s one tiny fraction of the paper’s output. You’d do well to find more articles from The Times to back up your opinions.

    Here’s one that’s right up your alley:

    Why the declining demand for men?

    Have at it, W! This is for you!


  3. So they fired a guy for doing what journalists aren’t allowed to do. And?

    You know what taking other people’s work without attribution is called elsewhere? Blogging. Yours is full of it.


  4. I was laid off about a month and a half ago. I moved across the country to a better job market. I apply for probably 10 jobs a day. I have had almost zero responses for jobs in my field.

    As for “working 2 mediocre jobs” as John Barron has suggested… that’s a good idea, IF I could get an interview. I have been told that I am overqualified for the low paying jobs, and have even been told to “dumb down” my resume lol.

    Ironically, it was my most conservative friends that told me to file for unemployment as soon as possible. So, I am quite thankful for unemployment benefits! Nothing has encouraged me to get another job than taking a huge paycut and feeling like a loser.


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