Fifteen Million Freeloaders and Counting, Are You One Of Them?

Unemployment Benefits just encourage the unemployed to be lazy and not look for work and the benefits are probably spent on drugs anyway. These are the arguments increasingly heard from the likes of Senator Kyl(R), Rand Paul and Sharron Angle, GOP senate candidate for Nevada to argue against extending or adding to EUC. They completely oversimplify, take out of context economic research or just plain ignore good economic research. 

A review of economic findings concerning the impact of UI in the labor market shows that significant considerations are often ignored when presenting economic research in the context of the current debate over extending Emergency Unemployment Compensation. A careful review of the research by NELP.org finds:

1. Today’s severely depressed job market—not unemployment insurance—is the cause of long unemployment duration: Previous research assumed that work is readily available (full employment). These studies do not apply with equal force in today’s slack labor market where there are 5.6 workers for each job opening and when a far greater proportion of workers has been subject to permanent rather than temporary layoffs. With odds of finding a job this slim, any possible disincentive effect of UI is drowned out by labor market effects.

2. Newer research debunks old assumptions about the impact of unemployment benefits on unemployment duration: Estimated impacts of UI on the duration of unemployment spells vary greatly, depending on research design and the underlying data used. Compared to older studies, several estimates based on new research show any disincentive impact is very modest. For example, recent research by influential economist David Card found that the incentive effect was less than half as much as the widely cited estimates by Katz and Meyer.

3. Unemployment benefits boost the economy, and help employed workers by stabilizing demand: Many older studies concerning the impact of unemployment insurance benefits on unemployment did not account for ways in which benefits may actually lower the unemployment rate (e.g., by sustaining consumer spending and leaving jobs available for uninsured workers). This was because they used data solely related to insured jobless workers and did not assess the effect of UI on the overall labor market and economy.

4. The positive social welfare impact of unemployment benefits far outweighs the marginal impact of UI on the length of jobless spells: Unemployment insurance enables workers and their families to preserve their savings (e.g., retirement accounts and life insurance policies) as well as avoid severe financial hardship (e.g., foreclosure, bankruptcy, and hunger). And, with the worst long?term unemployment since World War II, benefit extensions play a critical role in preventing poverty and economic hardship in 2010. In other words, even if UI extends the time jobless workers are laid off, these workers and the economy are better off for having received the assistance.

Given the lack of available jobs, low unemployment benefit amounts, and severe hardships experienced by long?term jobless workers, concerns about disincentives from unemployment benefits are exaggerated. More importantly, concerns based upon uninformed assumptions about what economists say regarding UI provide insufficient grounds to justify denying essential benefit extensions to jobless workers caught up in the biggest labor market downturn in post?war U.S. history.

Read more in Beyond Sound Bites—Understanding the Impact of Unemployment Insurance on the Severity of Unemployment at NELP.org.

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