Tag Archives: Unemployment Benefits

Do unemployment benefits discourage people from working?

I noticed that the latest jobs report showed that the percentage of work-eligible Americans working was at a 38-year-low.

CNS News reports:

A record 93,626,000 Americans 16 or older did not participate in the nation’s labor force in June, as the labor force participation rate dropped to 62.6 percent, a 38-year low, according to the Bureau of Labor Statistics.

In June, according to BLS, the nation’s civilian noninstitutional population, consisting of all people 16 or older who were not in the military or an institution, hit 250,663,000. Of those, 157,037,000 participated in the labor force by either holding a job or actively seeking one.

Now, let me ask you this. Does paying people to not work cause more people to not work? It seems to me that whatever you subsidize, you get more of, and whatever you tax, you get less of.

Now look at this article from the radically-leftist New York Times.

It says:

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.

Here’s a new study explaining how the “generosity” of the big government Democrat Party 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 benefits offer a disincentive for Americans to find work

The most troubling thing about this is what is not said in the chart or the study – think about the children growing up in these households where their parents, especially the fathers, are not working. What are they learning about self-sufficiency and the role of government? They are the ones who we are going to task with paying for our lavish entitlement programs in the future. Are people who think that dependency on government is normal being trained to pay for the exploding costs of Social Security and Medicare?

Do unemployment benefits encourage people to avoid working?

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

Excerpt:

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).

If Democrats understand economics, then why is unemployment so high?

First, Nancy Pelosi thinks that the productive people should pay people not to work. (H/T Hot Air)

What’s wrong with that?

Ed Morrissey writes:

  • “This is one of the biggest stimuluses to our economy” — No, it’s a net drain on the economy, although for understandable purposes.  It reroutes capital from production to non-production.  We are paying people who aren’t working by using capital that could otherwise go to creating jobs.  It’s a policy tradeoff and understandable, although not for 99 weeks, which is what Pelosi is attempting to extend further.
  • “It injects demand into the economy” — Not at the rate in which the capital gets destroyed.  Remember, the money for this program gets confiscated from producers and passed through the government bureaucracy to non-producers.  What winds up back in the hands of producers is much less than what left their hands in the first place.
  • “It creates jobs faster than almost any other initiative” — No, it doesn’t.  In fact, it depresses job creation, which is part of the policy tradeoff.  If this was right, we’d be at zero unemployment by now.  Tax cuts, especially on capital gains, creates jobs by getting capital into the hands of job creators.
  • “It’s impossible to think of a situation where we would have a country without unemployment benefits” — That’s not actually the debate.  No one is suggesting that we eliminate all unemployment benefits.  The debate is whether we will keep extending them further.

The trouble is here is that the federal government takes a cut for themselves whenever they redistribute money from one group to another. And the government doesn’t produce jobs as well as the producers they take the money from – because government is wasteful and inefficient compared to private business.

Hillary Clinton

Here’s a post from The Right Scoop showing what Hillary Clinton thinks of producers. (H/T ECM)

She says:

It’s important, too, that we look at how to promote broadly-based prosperity. One of the problems in societies around the world today is that too much of the productivity of the economies are going to too few. Too few people, the political and economic elite, are realizing the vast majority of benefits from economic activity. It’s true in my own country where, unfortunately, economic inequality is increasing. And it’s true in Ukraine. It’s true in Europe and Asia and Africa and South America. So part of the challenge of economic growth and prosperity is to make sure it gets down and equally spread among people.

When you take money from the few, and reward the many, it also helps you to get re-elected – because you’re buying more votes. Pretty soon, you have half the population paying no federal taxes and the top half of earners paying almost all the federal taxes. Eventually, the top earners realize that they are being bled dry by the the preening wealth redistributors in government, and they scale back their production and hiring, outsource their jobs to other countries, or leave the country entirely. And that’s why unemployment is at 10%. It’s something that leftists like Pelosi and Clinton never learned – they have no concern st all about how the people they rob will respond to being robbed. And it impoverishes us all when we punish the most productive members of society. Where do you think jobs come from? The poor?

Barack Obama

The Detroit News reports on one of the reason why we all lose when government decides that they know better ways to spend money than entrepreneurs. (H/T The Blog Prof)

Excerpt:

The government is handing out nearly $2 billion for new solar plants that President Barack Obama says will create thousands of jobs and increase the use of renewable energy sources.

Obama announced the initiative in his weekly radio and online address Saturday, saying the money is part of his plan to bring new industries to the U.S.

“We’re going to keep competing aggressively to make sure the jobs and industries of the future are taking root right here in America,” Obama said.

The two companies that will receive the money from the president’s $862 billion economic stimulus are Abengoa Solar, which will build one of the world’s largest solar plants in Arizona, creating 1,600 construction jobs; and Abound Solar Manufacturing, which is building plants in Colorado and Indiana. The Obama administration says those projects will create more than 2,000 construction jobs and 1,500 permanent jobs.

That’s $1,333,333 per new permanent job.

That money could have created many more jobs in the private sector. But now it’s been wasted for politically correct solar power. And that’s why government spending prolongs recessions – it takes money away from job creators for fashionable boondoggles designed to get people elected.

UPDATE: The ONLY stimulus that counts is A JOB – or several job offers. People on unemployment are not going to spend because the future is too uncertain. What makes people spend is a current job, along with the prospect of other jobs if this one falls through. That’s what caused people to spend. You need to give tax breaks to the suppliers – suppliers stimulate demand by creating products that people actually want to buy.