With New Employment Numbers Comes Questions About the Role of Unemployment Compensation Payments

No They Are Not a Perfect Solution; No One Said The Were

The September employment data was released by the Labor Department and the news was, well, the news was not different from previous months.  Helped by the return to work at Verizon private employment rose by about 137,000 jobs.  Overall employment rose by 103,000.  The unemployment rate stayed steady at 9.1%. 

The difference between total job increases and private sector jobs is of course due to the fact that governments continue to lay off workers.  Exactly how firing government workers is going to alleviate the unemployment problem, which governments are trying to do is not clear.  However, the prescription of the day is austerity, and that the economy can return to full employment by eliminating jobs and employment.  At least, that is what Conservatives believe and they are so sure that they are right that the rest of us are loathe to argue with them.  (ok not all of us).

One question that has come from the Obama Administration’s program to extend unemployment compensation to as much as 99 weeks is whether or not that extension is contributing to higher unemployment.  The short answer is yes (actually that’s the long answer also).  By giving the unemployed some economic support while they are unemployed, some will turn down offers of employment in order to seek better opportunities.

Economists call this the Free Lunch Problem in that there is no such thing as a free lunch.  No program is without its costs.  For unemployment compensation there is the monetary cost and the result that this program will raise the unemployment rate.  The increase is not large.

Economists generally agree that unemployment benefits encourage some job seekers to delay accepting a job, thus raising the unemployment rate. A study by the San Francisco Federal Reserve last year found that the benefit extensions had increased the rate by four-tenths of a percentage point.



Emile Wamsteker/Bloomberg News

Job seekers outside the Metropolitan Pavilion before

 the start of a job fair in New York this week.

(or as politicians call them, lazy people)



And of course

Some Republican politicians have gone so far as to suggest that people living on unemployment are simply lazy.

But the question of whether or not unemployment increases because of unemployment compensation is only part of the issue.  The rest of the issue is whether or not given the costs of the program, both in terms of money and higher unemployment, is the net benefit substantially higher than it would be without the program?

That answer has to be yes, that for many people unemployment benefits are the difference between surviving economically and devastating poverty.

If the extension is not renewed, benefits for more than 2.2 million people will be curtailed by mid-February, according to the Department of Labor. The Obama administration estimates that with no extensions, a total of six million people will run out of benefits over the course of next year.

Unless job growth picks up sharply, many of those people will struggle to stay out of poverty. Unemployment benefits, which average $298 a week, help families and serve as economic stimulus because most of the money gets spent right away on basics. 

And as for the problem that the unemployed will not take open jobs, there is this anecdotal evidence.

Preston Venzant, 47, who lost his job in Houston repairing commercial kitchen equipment, said he had decided not to apply for unemployment benefits over the objections of his wife.

“I don’t want the federal government giving me an incentive not to work, period,” he said. “My personal opinion is, you’re supposed to go find work, and if you can’t find it in the business that you were once in, be it a C.E.O. or a street sweeper, you have to find employment and your lifestyle has to change, so be it.”

After months of looking, Mr. Venzant said, he has gotten an offer that will give him two years of work, with free room and board and five weeks’ vacation. All he has to do is move to Russia.



Michael Stravato for The New York Times

Dan Tolleson, an unemployed Houston resident,

 showing a bunk bed system he designed.



And another anecdote concerns an individual who is strongly opposed to unemployment compensation but

Make no mistake — Mr. Tolleson, 54, has collected unemployment checks, saying he had little choice. 

You are welcome Mr. Tolleson, glad we could help out.