Do generous unemployment benefits prolong the length of unemployment?

by Xin Lu on 27 March 2009 133 comments
Photo: Food lines

The latest news is that unemployment benefits will be extended from 59 weeks to 79 weeks in California with the help of the new Federal stimulus money.  The maximum benefit has risen to $475 a week and it means that some of the unemployed Californians  could collect over $2000 a month for more than one and half years. This makes me wonder if people will now stay unemployed longer because they have more benefits for a longer period of time.  After all, more "free" money would make a person less motivated to find a job, right?

Here is some anecdotal evidence that more unemployment benefits actually makes people less inclined to work.  There are a couple of my friends who actually want to be laid off just so they can collect the unemployment.  They all qualify for the maximum benefit and they do not particularly like their jobs.  They actually do not mind getting a "vacation" while living on unemployment because they are young and single and their expenses are low due to shared living conditions with their parents or friends.  There are a couple others who are already unemployed who think it is awesome because they do not really have to do much to collect the money.  At least one of them plans to use the break to prepare for graduate school, and that seems fairly productive.  If you think about it, $475 a week is nearly $12 an hour if you consider each week as 40 work hours.  $12 an hour is much better than minimum wage, and they do not have to put in much effort to get this money.
 

Then I did a bit of research and it seems that I am not the first person to question the effects of generous long term unemployment benefits.  There has been many studies done on the amount of unemployment insurance in relation to how long people stayed unemployed, and most of them do find that more unemployment benefits do steer  people to stay out of work for a longer duration.    This is not really surprising because if the unemployment benefits cover someone's expenses then they would not be in a hurry to find another job.

ARTICLE CONTINUES BELOW

I talked about this to another friend for a bit and he said that in a way unemployment benefits is efficient in that it allows skilled workers to take their time to find a job that suits them, and not just settle for a minimum wage job out of desperation.  This is actually the same argument by an economist named Raj Chetty.    Basically, he argues that there is nothing to celebrate when people have to work at unsuitable jobs.  I believe there is definitely merit to this argument because if you are an unemployed engineer you would probably be very unhappy to be working at a fast food joint  out of desperation.  Also, the engineer would be taking the job of someone whose skillsets are more suited for fast food, and that would make the other person unemployed.

The bottom line is that I believe that unemployment benefits  is definitely useful in our economy because it keeps many people in their homes and away from crime in times of need, but there needs to be a reasonable cut off to how much benefits are given.  I personally think 79 weeks of benefits is just a bit too long, and sometimes people just have to put the "perfect job" on hold for a bit in order to survive. However, activities like preparing for graduate school or starting ones own company during unemployment may turn out to quite productive.  What do you think?  Is 79 weeks of benefits way too long?  Do you think more unemployment benefits will be a boost or detriment to this economy?  Have you felt less motivated to find a job when you receive extremely generous unemployment benefits?
 

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Andrea Karim's picture

I'm not sure that anecdotal evidence is a good indicator of how people are going to treat extended benefits. $475 a week may be good enough if you live with your parents or have lots of roommates, but what about people who have a family to feed? I seriously doubt many of them would chose $475 in government checks if they had a better option.

Guest's picture
Rose

In Arizona where I live it is $265 a week. I got laid off two weeks ago and I am willing to take any job to save my home. I think people would rather work then be in the position they are in. I know I do.

Guest's picture
BudThomas

If someone is going to 'milk' the system for a measley $475 per week, they are considered losers. If someone plans of 'taking time off', re-evaluating what they want to do WHILE collecting $475 a week, they too are losers.
People that live with mommy and daddy and collect $475 from unemployment a week ARE indeed losers. Now, if someone is ACTUALLY TRYING to get a job while TEMPORARILY relying on unemployment, that's fine.

I'm a father of 2 and the sole breadwinner. I was earning nearly $200,000 annually and now would earn the same as someone that made $70,000 or $50,000 a year. $475 to me is a single car payment, or a single utility bill, and it does absolutely nothing to 'help' sustain (even within reason) my livlihood if things would change for the worst. This is why I have my OWN insurance plan that can carry me for an entire 2 year period WITHOUT touching savings. IF people had the same attitude, they would understand that NOTHING is guaranteed in this world, and they have to fend for themselves - plan ahead. Taking from your own 'stash' is greatly going to get you motivated, trust me....

IF you think that $475 is a lottery win, think again. For those of you that live with mommy and daddy and $475 IS a lot of money, you're a loser. GET A JOB!

Guest's picture
Guest

"There has been many studies done on the amount of unemployment insurance in relation to how long people stayed unemployed, and most of them do find that more unemployment benefits do steer people to stay out of work for a longer duration." [Link provided]

Guest's picture
Guest

What I mean is, anecotal evidence may have been the starting point for this post but it wasn't the end.

Guest's picture
jb

What's that line about lies, damn lies and stastics? A study can be skewed to fit a preconceived notion. In this case what's the cause and what's the effect? Maybe the benefits have been extended because people are out of work longer, not the other way around.

Guest's picture
Christopher M

This is so typical of AOL and other websites that post replies that date back 2-3 months! Why dont you and AOL take off your editorials becasue you dont care about people just prolificating Conservative "kick in your teeth" ideas!

Wow and that Xin Lu probablly could care less about workings that are struggling and wont ever understand until she cant get a job! Disgusting!!!
Shame on you Xin Lu and Aol for not publishing real ideas! Say hi to George W. Bush and your other friends!

Guest's picture
jacob

hey budthomas your a fuckin idiot u dont or did make 200,000 a year u are one of those guys that got fired from a job because u wanted to spend time with your boyfriend and now mad because u can't get on unemployment your a idiot.. the unemployment is a awesome thing it gives the people that were miss treated at work to go some where in life like go to college while being on unemployment. ill ad mid it im on unemployment i was working in construction workin 7 days a week 12 hours a day traveling all over america building water/dry tanks when i got fired because the client was wrong and i got fired and i never seen my family maybe 2 months of the year and now im home everyday seeing my family and im going to itt-tech so u no what THANK YOU GOVERMENT. FOR THE REST OF U THAT DONT THINK UNEMPLOYMENT IS GOOD UR JUST MAD BECAUSE YOUR NOT ON IT OR YOUR MOMMY AND DADDY PAYS FOR EVERYTHING FOR U

Xin Lu's picture
Xin Lu

Well, the thing is there are families that live on minimum wage here in California, and like I said $475 a week is a lot more than minimum wage.  It is definitely possible to live on that amount of money, especially if you have two people in the household who both get that much unemployment. In that situation the household would be making over $4000 a month, and that is above the national average household income  and above the household income of some working families I know.     Also, as a tangent,  isn't it a bit unfair that the poorer people who get paid minimum wage are paying for a group of people to be paid more than them for not working? 

Guest's picture
kirstjen

You seem to think that everyone, including minimum wage workers get the full amount. Generally, you get a percentage of your past wages when you collect unemployment, so it is impossible to get more money on unemployment than you would earn. Also, keep in mind that unemployment benefits are TAXABLE income, meaning that $475/wk is your gross pay.

Most people cannot pay rent & a car payment on that amount, let alone food, medical care, clothing, etc. The friends I have who are collecting unemployment are really scrambling to find work.

Again, regarding the poor people "paying" unemployment taxes for rich people is crazy. UC pmts are paid by the employer & the worker into the pool.

Generally, higher paid employees have made use of unemployment benefits less frequently than lower paid employees, but lately it seems that many more people need them.

It sounds like you have some loser friends -- maybe instead of blaming the system, you should look at the kind of people you associate with & make some better choices.

Guest's picture
baja302

Remember this!... Unemployment funds, are my funds!!! I paid into the system and now I get back what I paid into!!

Guest's picture
Guest

Some people seem to forget that unemployment benefits are paid based on the previous income. I too just became unemployed for the first time in my 30 years of a working life. I paid insurance during those 30 years, and I receive the maximum benefit. It is a fraction of the income I had until recently. I'm lucky. I don't have a family to feed and am able to pay for housing and food with the unemployment benefit. So I will not lose the roof over my head right away, but it will be a major adjustment to my quality of life. And the benefits are not enough to keep health insurance coverage. With some big health problems in the past, I can lose my house over a medical bill in a heart beat. Do I like the "vacation time" on "free government money"? It's a lousy vacation worrying about how to pay the bills, and it's not free money, but the money I paid in insurance in the first place. From where I'm standing, I'd rather be gainfully employed!

Guest's picture
Guest

I was making 47,000 before I got laid off which was way more than $475 a week. So if you make minimum wage you get close to that for unemployment. The amount is calculated based on your wages that you earned within the last year. If you made less you get less. Imagine earning 80k a year and having to live on $475 a week!!!

Guest's picture
CM

Dear Xin Lu,

You are majorly out of touch with life! I am sure you live with mommy and daddy! That picture of you totally proves how you are hearless and could care less about people that are struggling.

By the way it is not possible to live on that amount of money! People that have a morgage and a real life can not live on that! You sure are heartless, in La, San Fransisco and even San Diego it is not possible! Do you really think that people that had a career and with a college degree and in many cases a Master's degree would like your "nasty" implication that they should work for mininum wage!
Well Ms. Xin Lu I sure hope you are in the situation of collecting unemployment then write an article on that when you are!!
You are really, really arrogant with your self righteous attitude and I am sure typically age discriminitory! Thank you for nothing!

Andrea Karim's picture

Welfare always seems a bit unfair to the people who are paying taxes and working at the same time. And I wouldn't suggest that there AREN'T people who would happily continue to accept unemployment for as long as they can, rather than to look for work.

But I guess I'd argue that I'd rather risk having some people take advantage of the system than see a vast increase in the number of homeless families. Lesser of two evils, really, as with nearly all issues of a failing economy.

Guest's picture

WOW, $475 is alot more than the $275 that I am receiving in TN which I'm sure is based on the cost of living but man!

I happened to lose my job right before the college semester started so I signed up for school. I had no intentions on returning but I could get my degree while I was getting "paid" u/e benefits.

What I find funny is that the food stamp office tells me I make too much money on u/e and can only draw partial food benefits. Really, $275/wk for a family of 5. OK, glad I use coupons or I really couldn't survive!

Philip Brewer's picture

States can vary it some, but the basic model from the federal government is that there's a baseline period of unemployment benefits that applies most of the time, and then a longer period when the unemployment rate is high.  So, for example (they've been changing the details and I haven't kept up, so these are example numbers), normally it's 6 months, but when unemployment goes over 6% it goes up to 1 year.

I think that makes a lot of sense.  When economic conditions are normal, you keep the benefit short enough that it's not so easy to take advantage of, but then when times are tough, you make them more generous.

I don't think there's widespread abuse of unemployment benefits to take time off, simply because most people live right at the edges of what they can afford.  Most people can't get by on just what unemployment provides, so they need to find another job as quickly as possible.

That said, there are some people who arrange their life to minimize the amount of work they have to do and to take maximum benefit of things like unemployment.  I wrote about one of them here:

http://www.wisebread.com/find-work-worth-doing

Guest's picture
J.

By my calculations, $475/week is $1900/month. Where do you get "more than $2000 a month" from?

Do you mean in addition to other benefits?

There are always a few people for whom any assistance is a disincentive to work. But they are the exceptions. Most people use these programs until they can get something better, i.e. a decent job. Believe me, decent jobs are hard to come by right now!

Guest's picture
Guest

So you are saying that someone like my wife that is a systems engineer and gets laid off should just get over it and do the following. Take the full time position at Wal-Mart for 22 an hour less than she was making, sell her home (in this economy?) get rid of her car and mine, move into a homeless shelter as now we can not afford rent for a home large enough for our family and feed them at the same time?

My wife and I relocated for work last year. We spent a ton of money to do it and thought it was an investment in our future. 91 days after we got here and got settled she lost her job. Now we have a house note, car note, medical bills, etc. that we can no longer afford. We lost over %50 of our income. That was last April. She has applied for every IT position that is posted in 150 mile radius from us and has not found any work anywhere for over a year. Should she take the job at Wal-Mart and lose over $1000 a month simply because you think she should.

Sounds to me like your idea of research is to ask a few people that you hang out with in the gym. Get out and read something substantial. Look at what is really going on. Then make a truly educated decision. Anyone that makes statements preceding them with "I asked a few friends of mine" is simply mouthing off and showing how truly uninformed they are. Right now over 5 million people have lost their jobs since Dec. 2007. That is according to the Department of Labor. This is expected to increase sharply. This issue is not going away anytime soon.

The bottom line is you need to get your fact straight before you go spouting off about things being too good for those unemployed people. We have lost everything in our savings and retirement and are in bankruptcy because of her unemployment. We fought for over a year to keep things going and even with the help of the benefits, we are going to lose our home and it has put her out of the running for many jobs since she needs secret clearance. I am not trying to whine here. We are one of millions of folks that are in the same boat. Your friends with the option to go back to school should really think long and hard about it. They are going to get their education on unemployment, have the state pay for it, and then what? In today's economy they are highly likely to be an unemployed grad school graduate working with my unemployed engineer wife at Wal-Mart.

Xin Lu's picture
Xin Lu

J, a month is on average 4.33 weeks.  There are 52 weeks in a year, divide that by 12 you get 4.33.  4.33 * 475 is $2058.  That's how I got my calculation.  The only month that's exactly 4 weeks is February. 

Guest's picture
J.

I have a PhD in a scientific discipline. The US taxpayers invested more than $120,000 to train me in that field, via scientific training grants. For me to go to work as a dishwasher because I cannot immmediately find work in my field would not be an efficient use of government funds. It makes much more sense for me to collect unemployment (much less than my salary, which is also from government funds, by the way) for a few months, until I can find a job in my field.

Xin Lu's picture
Xin Lu

Yeah J that's basically what I wrote about in the 4th paragraph.  There is an efficiency in using unemployment to match people up to the jobs they qualify for.

Guest's picture
J.

J, a month is on average 4.33 weeks.

OK, fair enough. I guess I've been checking my Hebrew calendar too much lately ;-)

(love those lunar calendars...)

Guest's picture
AlexK

Do you need to have had a job in Ca to collect Ca unemployment? I'm gainfully employed in NV and would gladly move across the border to collect $475/wk to relax and travel. I'm a capitalist and did not vote for this socialist regime but if you can't beat em....

Guest's picture
Guest

My question is a bit off tangent but I'm curious to see why unemployment benefits are considered taxable income, seems a bit unnecessary.

Xin Lu's picture
Xin Lu

well the new Obama stimulus is actually making the first $2400 nontaxable.  Yeah it is kind of funny how it is taxed considering it comes from either unemployment tax or income tax to begin with. 

Guest's picture
D.

$2000/month is the maximum benefit. If you lose your health/dental benefits when you lose your job, then COBRA kicks in (if your company doesn't go under). Since you have to pay these costs out of pocket, I know a few years ago for me, they were running about $1150/month to cover me and my family for health and dental. So its probably safe to say they're over $1200/month by now.

So your net after paying for health/dental insurance is about $800 which needs to pay for housing, car, food, utilities, etc. Hence the importance of having an emergency fund of about 6 months expenses on hand to help you weather thru this.

There are restrictions such as going back to school that may cause you to lose your benefit.

In CA, much of the process can be done via mail and over the web. The one time I was required to show up at an unemployment office for a session on how to use their resources, I was struck by the differences between the people there. A segment of us were from high tech jobs and companies but most of the people were working at "blue collar" positions.

So while I spent 6 months looking and interviewing before I was hired for the next job, I think the benefits are at the appropriate level. I had sufficient funds to allow my job search to extend that period. And I think in most cases, the benefits aren't enough to live on. They do make it easier to get by.

With CA unemployment heading to 10+%, its going to be difficult to find a new job at the appropriate level. I'm glad they extended the benefits, it seems the right thing to do. Even so, I think quite a few unemployed individuals will be in danger of losing their homes and savings in today's economic downturn.

Andrea Karim's picture

That IS weird, about the taxation. "Here is some money - oops, we're going to take some of that back! We could have just given you a little less to begin with, but that would be far too efficient!"

Guest's picture
A

In these terrifying times, every unemployed person I know is desperate to find a decent job--not the "perfect job"--just something that will provide enough to live on. The only people I can see surviving on unemployment are kids living with their parents.

Guest's picture
Guest

I despise anyone that naively states that based on the increase, people receiving unemployment are less motivated to look for employment. Not everyone can qualify for the maximum of $475 in California. I made $26 grand a year and only qualified for $250 a week from unemployment.

I have busted my ass trying to find work. I have gone to several job placement agencies and they too are having a rough time trying to get jobs to fill. What else am I supposed to do when job sites are filled with scam jobs and local businesses are shutting down?

The EDD has programs to help train the unemployed. The EDD also conducts random interviews to check in on recipients. They aren't going to just money away.

I ask that people like you do some more research into what the EDD is and what is does for the unemployed. Please do more than read a couple of articles before you post your next blog.

Guest's picture
GaBs

uuum about people being LESS motivated to find a job when they r gettin ui benefits...i think that would only be certain lazy asses that dont think dat at the end of the day...when there ui benefits r over they r not gonna have a job..or iu checks to use...whos gonna want to hire u after a year of not working???? i was laid off feb.15 2009...i statrted getting un employment in march....im going crazy trying to find a job...n i have not been called from ONE of all 25 jobs ive applied too...yes im keeping track of all the jobs ive applied too...this is depressing...i mean i dont have kids or a family to feed...but i have parents to help...it sad that u ASSUME all people who r receiving ui r like that...maybe if u were in that situation u wouldnt saay the same...besides some of that money is money we,ve worked for....our emplyers have a bank account were some of that money is taking from...

Guest's picture
ROMANO

I only wish that life brings all of you who are currently opposing unemployment benefits, or you think they are "to generous", in a situation where you desperately need it and have to depend on it, so you can see for yourself how great they are, or even better, not qualify for it, so you finally get WTF you're wishing others!

Xin Lu's picture
Xin Lu

My point is that if unemployment benefits are too generous, then it makes people less motivated to take suckier jobs than if it were less generous. Also, the longer the benefits last the longer people will wait for the better job.    For example, you are getting $250 a week, and that's less than $7 an hour, so if you find a job that pays $8 an hour you would be ahead of unemployment.  (Actually unemployment might still be better due to the $2400 tax free for the year.  If you work you'd be taxed a little.) However, if your benefit increased to $475 a week, then you need a job that pays at least $12 an hour to beat unemployment, and if you are already getting $12 an hour on unemployment, then why bother taking the $12 an hour job?  Usually jobs that pay more are harder to find, and thus there is less incentive to take a crappier job when you have more unemployment benefits.  However, if you knew that your benefits were running out tomorrow, then you might be more inclined to take the crappier job, but the longer the benefits last, the more you would try to find a better paying one.  I don't think it's naive to say this, and it is not necessary a bad thing. 

Guest's picture
Guest

You think $475 is genorous? Do you know what the cost of living is in California?

Guest's picture
Money reduction

I made $75,000 last year. $475 a week is nothing compared to my salary. My rent is $2000 and I have a college degree. Everyone's situation is different,

Guest's picture
Guest

You must be earning a certain salary to qualify for the $450 a week benefit in CA. With that say, that is about average $25 an hour. At this pay rate or salary you must have earned a college degree or have years of experience. Because the max is at $450 a week which equates to $12, its like saying you just got downgraded by half for no fault of yours even if you had paid your dues by finishing college and working your way from entry level jobs to a decent average $25 an hour job. I think it takes hard work to get some people to earn that much in CA because its an employer market for many years.

Personally, I earned my BS degree in Finance 5 years ago and was lucky enough to find a good paying job after college. I worked my way up from entry level to where I was a few months ago. My company decided to outsource my job to India. I hate being on unemployment because I have bills and parents to take care of. I've been desperately looking for a decent job and I can't afford taking $450 paycheck a week compared to what I was making before. Also, not only is this financially hard to deal with, its emotional and mentally tiring to try so hard but yet you get no calls back.

You might think you know it all by asking your friends (probably in your age group which are mostly singles, living with parents, no kids, no medical issues) but you don't know until you walk in their shoes. I suggest you read your own comments before posting them.

Unemployment benefits funds are pulled from people who have worked and paid income taxes therefore if someone needs to use it to help them through tough times then let it be...its not your money that you have invested in them...its their own hard earned taxed money!

Guest's picture

My son is a laid off union electrician. His benefits will run out withing 3 months. Now that is incentive to get back to work! Either way, the extended benefits is a good thing. He really wants to work, and having just "come out of his time" as a Journeyman, he wants to stay in the trade it took 5 years to apprentice in. Maybe we need to stop over-analyzing everything.

Guest's picture
elise

I can personally say that many young people (even those living with parents) are actively looking for jobs, not just living off unemployment. Honestly, 2000 a month is not bad but it's at the expense of forgoing gaining work experience. As a young professional with little debt, I put much value in gaining relevant experiences to prepare for the rebound of the economy (hopefully soon) and a good career in the future. Unemployment helps to pay the bills when there isn't real income, but anyone with some degree of motivation and career goals would not settle on that over a real job in their prospective fields (even if the pay is lower).

Guest's picture
Guest

You don't understand the situation. Unemployment is higher here than any other state. Do you honestly think the majority of us sit at home calculating what we get hourly with our unemployment checks? Do you honestly think we sit there thinking "hell, I'm living high on the hog. i don't need to work"? I wish it were so easy to grab a minimum wage job right now. It's easy for an employed person to look down on us and make snap judgements.

Xin Lu's picture
Xin Lu

@Guest22: I know how much it costs to live in one of the most expensive counties in California, but I also know families that make it here less than $3000 a month.  It takes work, but it's doable.  

@Guest21: Like I said, you don't need a minimum wage job if your unemployment benefits pay more than minimum wage, because there is really no point.  You are not living high on the hog, but there is no incentive to get an $8 an hour job when your unemployment benefits pay $8.25 an hour.  If you haven't figured that out then you should calculate it a bit. I'm not making a judgement, just a logical observation.

Guest's picture
studying

I agree that one would be less willing to work for less or the same as one collects from Unemployment. For eg. I went to a staffing agency after trying to find a job on my own for several weeks..yes I send out at least 20 applications per day and no response. Robert Half told me they have Permanent positions available after they pulled my resume off Monster..They called me in to talk about job opportunities..only to find out they did not have any permanent job available..Perm section pass me on to Temp section who informed me thy can only pay me 10-15 per hr.

I receive the Max in UI in NYC...Why would I take a temp position in a that has nothing to do with my qualifications (i will not learn anything from this job) and end my UI??? I think it would be in my best interest to keep looking for perm positions while concentrating on studying for my CPA exam. NO I WILL NOT GIVE UP 405 PER WEEK AND AN OPPORTUNITY TO FOCUS ON STUDYING and finding perm job vs 350 PER WEEK.....If I take the latter I will have to figure out how I will be able to buy lunch 5 days per week and afford transportation to get to and from work.

You people who are not in this situation make it seem as if we did not contribute to UI or we did not pay taxes....If you want to biatch about something please complain about people who are sitting at home having gremlins .....never work a day in their life and get free housing because they have a million children...these people get free food and shelter.

I didnt ask to lose my job.. I worked long hrs every day and even overnights without sleep slaving for the big boys.

This is my first time being unemployed.....and no I do not enjoy staying at home. And this money we receiving is not free money. We work hard all our lives..hell we should be getting more.

Guest's picture
Guest

We need more like you. Just take all our benifts away, why work at all? Ive payed in to SDI for at least 25 years, according to you Im just another free loader. Thanks

Guest's picture
A

but this thread does sound somewhat judgemental to me. I find it disturbing to have a focus on why people don't scramble to take terrible jobs, instead of choosing to work on getting a decent position. Quite often a perspective changes when a person finds him/herself in an unexpectedly dire situation. Somewhat like a healthy person who looks down on the sick, until he/she is diagnosed with a life-threatening disease.

Guest's picture
SheRa

Last time I checked, unemployment was only for 26 weeks in New York.

Guest's picture
SonyaAnn

I live in IL and my husband and I have been working on an unemployment budget(just in case). I'm a SAHM so DH is the bread winner.
We looked into benefits and it breaks down to a percentage of what you made. Just because our state's benefits top out at $538 a week doesn't mean that you get that. It just means that $538 is the most they will give out. They definitely won't pay you more than you were earning while working. If you earned minimum wage, you won't even come close to the $2000 a month on unemployment.
Unemployment definitely wouldn't be a step up for most and definitely not us. But with preplanning and some praying, I think that we could hang on to what we have if we had to go on unemployment.
Best wishes to all!

Xin Lu's picture
Xin Lu

SheRa, it seems that NY is up to 59 weeks total now:

http://www.labor.state.ny.us/ui/claimantinfo/ExtendedBenefits.shtm

It's 26 weeks of regular benefits plus 33 weeks emergency benefits.  I think California is still going to have the longest benefits in the entire nation.

SonyaAnn, you are right about that unemployment benefits is never your old wage.  In California you need to earn at least $3890 a month for 3 months out of the preceding year to get the max benefit.   

Also to the previous commenter A, unemployment isn't really like an incurable/life threatening disease.  You can actually do something about unemployment and prepare for it through either saving or expanding skills.   When unemployment happens, you don't just lay there dying because you can actually work on getting a job if you choose to.

Guest's picture
Guest

My spouse has been out of work for 14 months, I've been out of work for nearly 8 months, and we are very glad to have the unemployment extension...

If the extension were not in place, and our regular unemployment ran out, we would be spending down savings at a catastrophic rate just trying to keep our (modest fixer-upper) house.

It's not as easy as "go out and get a low-paying job to survive" because the places paying $10/hr (or whatever) don't want to hire someone who was working in IT for ten years making $50-80K, or even someone in a sales job making $40K, because they know that as soon as a decent job in our field comes along, we're going to bolt. My spouse got instantly rejected for a checkout clerk job at Whole Foods. Basically at least one of us has to get a normal job in our field, or things are going to get dire in a few months, because we can't count on finding a McJob.

Guest's picture
Horlic

Wah!! That’s a lot man. I wish my company can retrenchment me now.

Guest's picture
Linus

Back in the late 90s I was unemployed by my own doing and had decided to switch careers. Canada's unemployment offered an option where you could go back to school with a $5000 grant to switch to new skills that were needed in an area. I had to cough up an additionally $10,000 (student loans) but one thing I knew, I didn't want to stay on unemployment. I wanted to be working.

I now live in the US and one thing I've noticed is a general exhaustion with work here. The only difference I can see is that Canada has universal health care. Which means even if I do get unemployed, I'm still covered for that. It makes me wonder if it's a matter of hope and optimism when being offered an opportunity (more education) as well as not having to worry about the bigger bills (medical) that made a difference.

No one I knew in Canada wanted to be unemployed.

That said, this market is different than back then (it was just prior to the Web bust). I think it's a reality of the fact that there are no new jobs in the market just yet and, extending the benefits is the safety net that's needed to prevent situations like the camps and such that erupted during the Great Depression. It will take time for the market to swing around again (although there are some glimmers right now going on in the Stock Market that doesn't mean much, IMO, to the average person).

Guest's picture

I sure there will always be people that "take advantage" of the benefits, but the real go-getters won't hang on any longer than they have to . . .

Guest's picture
wildgift

Your friends who want to get unemployment as a "vacation" are probably not "average" people. I've had that attitude in the past, now and then, but at the time, I had an in-demand skill, a degree from a good college, no responsibilities, and no kids. Also, I've never had to do serious job hunting for more than a month to get some kind of relatively cushy jobs, or a tougher job with better pay, or even get a request to interview from friends. I count myself very fortunate, though I'm barely "middle class", because I haven't had to struggle much. (I also love my work.)

Almost everyone else I've known who's had that attitude was some kind of underground bohemian with a low income and few responsibilities.

All the other folks, the normal folks, do not like unemployment. They fear it, especially in this shrinking economy.

They can't just go job hunting and get a $50k a year job within a few weeks.

Even if unemployment benefits were equal to their former wages (and they never are), there's motivation to seek work, because your unemployment benefits are limited. In this down economy, they might have to use them later if they get laid off again.

Also, though government numbers say CA unemployment is just over 10%, if you factor in the people who are underemployed or stopped seeking work, the rate could be as high as 19%, according to Dr. Housing Bubble.

That's serious.

Andrea Karim's picture

I understand Xin's point; logically, the way the numbers break down, it could seem like some people might see no reason to return to work when they can live on unemployment for 79 weeks.

It's just that so many other factors can take priority over the ability to live on the dole. As another commenter mentioned, it can be hard to go get a job that pays $12 an hour when you used to be making 70K per year. I was unemployed for a long time when I first moved to Seattle (I didn't qualify for unemployment, so I had to mooch off of my parents). I got rejected for a job at Office Depot - the manager flat out told me that he saw no reason to hire someone with a bachelor's degree. My argument that the smell of laser printer toner made me happy didn't sit well with him either, I suppose.

I agree with the Canadian commenter when it comes to health care. Health care alone is the one thing that keeps me in an office job - I can't get private insurance as a diabetic, or if I can, it costs thousands of dollars a month - hardly worth it (until, of course, it is).

Guest's picture
guest

How flippin dare you - do you think I'm happy about not finding a job? Do you think my family is? Think I'm livin large on $198 plus $25 (and thanks, truly, for that).

Guest's picture
A

that the last thing my unemployed friends need is to read the condescending comments of a snippy blogger. It is heart-breaking to see what they are going through daily in their efforts to find employment--but then, you'd have to actually have a heart to empathize.

Someone is not winning friends, nor influencing people.

Xin Lu's picture
Xin Lu

I like to write to promote discussion, and it's always interesting to see what different people think.  The issue here is that there has been a lot of studies done that showed extended and generous unemployment benefits did increase the length people tend to go unemployed.   It may not be a popular fact, but it is not condescending either.  It just makes sense.  Of course a lot of people are working hard to find another job, but like I said multiple times, if you are getting $X a week then there is no point to take a job that pays less than that.  Unemployment is a safety net, but there needs to be some kind of limit to how long and how big it is. Some people that commented seem to  not read beyond the first paragraph, and that's pretty sad.   

Guest's picture
Guest

I don't care much for this point of view, it reeks of elitism. To infer that collecting unemployment is a kin to mooching because getting laid off, fired, downsized, re-org'd is ALWAYS seen as an opportunity to bugger off. This opinion is provocative simply stirring up petty conflict and you should instead use that inquisitive mind to source out a solution! Only immature, irresponsible types would be able to live on unemployment as if it were an opportunity to beat the man, please find another outlet for your mischief and leave those struggling with ill fate alone, we have enough to deal with go sit down little girl.

Guest's picture
david in norcal

Longer benefits are only available where UNEMPLOYMENT IS HIGHER. My goodness, are you that ignorant about our unemployment compensation system? 79 weeks is available because CA's unemployment is 10.8%!!! Benefits are more limited where jobs are more available. When they extend unemployment benefits, that's what happens.

Of course people are taking longer to find jobs where unemployment benefits are extended --jobs are harder to find there!

Also you are suggesting a causal link between extended benefits and longer job searches, but you are not backing it up. You are "alluding" to studies which purport to demonstrate a causal link --but you've provided none. At most, you evidence a "correlation" and that said, you haven't produced one study to show even a correlation.

Guest's picture
margaret

Unemployment is a safety net, but there needs to be some kind of limit to how long and how big it is.

There IS a limit, as a poster pointed out above, it tends to vary with the severity of the crisis, as it well should.

I don't know how valid the studies you point to are, since the length of time unemployed, as well as the percentage of people unemployed, tends to be a measure of how the economy is doing. Have they corrected for that fact?

I'll accept that you didn't mean to insult people here, but you should show that you understand points of view that are from those who are not twenty-somethings with no responsibilities looking forward to their "unemployment vacation." Unemployment is very traumatic for most people.

I highly recommend reading "Down and Out In Paris and London" by George Orwell for a look at the life of an unemployed twenty-something during the depression, when there was no safety net.

Guest's picture
AnnJo

and unemployment compensation is going to upset people, but it still has to be done. In every labor market, there is going to be some optimal level and length of unemployment benefits: low enough and short enough to force people to make NEEDED changes (in career, geographical location, wage rate, etc.) and high enough/long enough to prevent UNNECESSARY hardship. And even at the optimal level, it won't be perfect. Some people will take advantage, some people who are doing everything they can will suffer great hardships.

Most unemployment compensation banefits come from unemployment insurance and general taxes. Employers pay unemployment insurance; higher/longer benefits make for higher premiums, and cause employers to cut back on jobs. Higher taxes divert funds from the private job-creating sector, and therefore also reduce jobs.

Most people in this country are descended from folks whose poor employment prospects forced them to undertake major life changes to adapt and improve their lives. Some of my grandparents and great-grandparents walked most of the way across Eastern Europe and took steerage passage across the Atlantic to work in North Dakota mines. The hardships they endured in making those adjustments resulted in major improvements in their lifestyles and their children's prospects, compared to their relatives who stayed behind.

If one can't get a job in one's regular career within a year, then it seems to me that some major adaptation in one's life is in order. When lots of people can't get new jobs within a year, some major social adaptations are in order. California has a lovely climate and many great advantages, but maybe it just has too many of something else, too: maybe too many people, maybe too much government burden of taxes and regulations, maybe something else. It needs to look to its public policies and adapt them if its job market is so poor.

For years, my family was in the restaurant business. The application of minimum wage laws to waitresses (who already made over $40,000 a year with tips before the law changed) along with minimum wage hikes for dishwashers & bus-boys, high rates of unemployment insurance and worker's comp costs, and the need to practically keep a lawyer on staff to deal with all the constant legal hassles (if a cook leered at a waitress there was a sexual harassment claim; if a black person got fired there was a discrimination complaint; if a customer came in drunk but hid it well and got served a drink, there was a liquor control violation), basically made the business unprofitable and not worth keeping open. Approximately 80 full-time jobs were lost when that business closed; the new business that took over the property hires four full-time workers. Not to mention that a whole lot of customers lost their favorite eatery. Notice that every single thing that made the business unprofitable was basically a government policy in action.

And then there are the relentless political attacks, subsidized by our tax dollars, against any business that DOES manage a few successful years - Walmart, Exxon and the rest of the oil companies, the drug companies, agribusiness. If you're successful, you're evil, if you're a failure, you're subsidized. And sometimes, like AIG, you're both evil AND subsidized.

Things will probably have to get a whole lot worse before some sanity is restored to our employment and business climate. Or maybe we're really on our way to becoming Zimbabwe, and sanity is no longer an available option. For anyone who thinks things are bad now, get thee to the history books for some perspective.

Xin Lu's picture
Xin Lu

AnnJo, you are correct in saying that when employers have to pay a lot of unemployment insurance  premiums it is detrimental to job creation.  Additionally, the current extra 20 weeks and expansion in unemployment benefits comes from the Federal stimulus bill, which is funded by income tax.  So some kind of study on the effect of these benefits has to be done.  The Obama economists say that each unemployment benefit dollar adds $1.63 to the economy, and that just sounds a bit dubious because when people are not working they are not really producing anything.  Sure, they spend money, but that would be money they would have spent anyway on necessities.  My article isn't meant to be an attack on the unemployed, but a look at the effects of policy on people.  

Guest of comment 42, your comment just didn't make too much sense. 

Guest's picture
Barbara

I am someone living thru unemployment right now. My husband has been unemployed 4 times in the last 4 years. His first company closed and it took him 9 months to get another job. He is now 58 years old and is over qualified for the positions he is applying for or because he doesn't have a degree-not qualified. When he does get a job, it last 5 months and the company downsizes or closes and he is unemployed again. We had a very healthy emergency fund which through this unemployment we are needing to touch a bit because our COBRA is $850 a month and the max UE in Illinois is 2044 a month. This is with 2 dependents.He is strongly looking for work but he will not settle for a junk job. He wants something he can stay at until retirement. Ue is a life saver for us and with the economy the way it is, I am grateful for every week we can get.
And yes, these benefits are taxable income.

Guest's picture
Guest

in my area of ny there roughly 250000 out of work and at any given time there are 10000 jobs avalible including min wage so lets see what are the other 240000 supposed to do its not that individuals are looking for a free ride its that there arent enough jobs to go around and across the country jobs keep disspearing and new ones arent being created i may not be a math major but i can see the issue here.
i understand your trying to promote disscusion but doing so in a condesending form with a let them eat cake mentality dosent help anyone the individuals who suddenly found themselves caught up in this economic storm are not jumping for joy there sitting there wondering if there going to have a roof over there head or food to eat and god forbid if they get sick its game over period.
With no disrespect to the auther ist is clear you have never felt hardship on this level your self I invite you to open up and try feeling the pain and suffering of others I think it will change your opinon of things greatly, its hard to undersatnd the veiws of others untill you walk a mile in their shoes.
Once agian I mean no ill feelings for the writer of this article.

Guest's picture
Guest

I read the article in its entirety and also many of the comments. I must say that many of the Guests that called the author elitist and condescending do not quite know how to write proper English. If these guests tried to improve themselves and learned proper grammar and spelling perhaps their chances of employment would improve. Anyway, I just think there is some truth to the author's argument that the more generous unemployment benefits are the more likely people are willing to stay on it.

Guest's picture
Guest

Xin Lu, there are better ways to deal with unemployed types who use their benefit as a vacation, rather than weakening the American Social Safety Net more than the last few administrations have.

The Canadian brought up many good points regarding American exhaustion and health care. Most employed people I know, in the US, work 60+ hours to make ends-meet with just one measly week of paid vacation each year. Also, the crappy American healthcare situation keeps far too many Americans chained to jobs they detest. Sadly, work for many in the US is a never ending cycle of wage slavery and drudgery. A 40 hour work week with adequate paid time off would be a good start.

To the poster who called the current administration socialist, I am curious why he or she is repeating this fallacy mentioned often in the corporate media and on hate-radio. Please let us know how President Obama is a socialist. And please don’t say it is because those making more than $250,000 will pay more in taxes. If this concerns you, you need to receive immediate psycho analysis into why your heart bleeds for the VERY fortunate and well-off more so than the less-fortunate. I do not see socialism here, but do see a continuation of state-sponsored capitalism that was employed during the last President’s tenure.

Guest's picture
Andrew

Originally posted by 'guest'
"And please don’t say it is because those making more than $250,000 will pay more in taxes. If this concerns you, you need to receive immediate psycho analysis into why your heart bleeds for the VERY fortunate and well-off more so than the less-fortunate."

First off... Quit with the fortunate/less fortunate crap! Is the CEO of a company that busted his ass through school while people his high school class mates immediately started banking at jobs fortunate? Was he fortunate when he busted his ass at an entry level job when he got out of school, dealing with all the BS that you have to to move up within a company, and working the 60+ hour weeks his entire career? No, that's called hard work. I wont say that were aren't many Amercans who work hard and do not make a lot of money; there are. I would suggest to them to try to make a career change: go to school, do whatever is necessary. But I am so sick of those who don't believe we all control our own fates to some degree. Those who are well off are not generally fortunate; they busted their asses to get there. Fortunate people are the ones who win the lottery... And guess what? 99% of these people blow that money within the 20 years it takes to receive it, if not much much faster (true, I made up the 99% number, but in general, that is the truth). People who busted their asses to make their money are not more fortunate; they just may have made some better decisions in life.

No, I don't make a lot of money.. But I damn sure plan to one day. Oh, and AnnJo, you are right on with everything youve said.

Guest's picture
AnnJo

"Most employed people I know, in the US, work 60+ hours to make ends-meet with just one measly week of paid vacation each year."

It's hard to take seriously the views of people like Guest @47 when they simply make stuff up like this. If "most employed people" were working 60+ hours per week, our unemployment rate would be under 4%. Labor statistics indicate that the average work-week of full-time employees is under 40 hours a week.

As for work being "wage slavery and drudgery," yes, a certain number of jobs are repetitive and boring, and some are even dangerous. But someone's got to pick up the garbage, manage the wastewater treatment plant, service the copy machines, answer the help lines and enter the data. What's your solution? And by the way, I have one of those "exciting" jobs, and after doing it for 30 years, don't much like it myself, but so what? Plus, nobody pays me for taking time off because - surprise - I'm not doing anything for them when I'm off, so why should they pay me? We have an inalienable right to pursue happiness, not a guarantee that we'll find it.

I think maybe economist Phil Gramm, who took so much flack a few months ago for saying we were a nation of whiners, hit the nail on the head. It's one thing to be asked to sympathize with someone who's lost a job and having a hard time finding another one, but when people like Guest $47 come along, with their kvetching because not everybody has a high-paying, constantly interesting job with outstanding benefits and lots of paid time off, I realize that for some people, the only satisfaction they get out of life is whining about how it's not perfect. Wonder who does the dishes and cleans out the toilet at their house?

Guest's picture
Another Guest

When you talk about families "making it" or "getting by" on extremely low incomes-- what does that mean? Does that mean they have secure housing? Do they have health insurance? What type of neighborhood do they live in? Where do their children go to school, and do they have childcare?

I'm also curious where you got the idea that low-paying jobs are easier to find. Yes, wages are based on the laws of supply and demand, but the job market is not monolithic-- there are a lot of different supplies to meet a lot of different demands. The grocery store manager isn't scoring a coup when he hires a laid-off IT professional as a cashier.

Guest's picture
Guest

AnnJo, I suppose you didn’t correctly read my line, "Most employed people I know, in the US, work 60+ hours.”
The key words are “most people I know.” The fact is many people whom are still emplyed do work more than one job to make ends-meet. And please don’t reference Phil Gramm, as he pushed for most of the deregulation that ended up bungling our economy. Mr. Gramm is nothing more than a wealthy political hack.

There will always be people like you that have little value for labor rights, and go on shifting the dialogue by referring to any real discussion as “whining.” The core reason why we lack the labor benefits people enjoy in some other countries is because we are too quick to equate such benefits to “laziness.” I am sure that you feel that workers in Germany who receive an average of 4 paid weeks of each year are lazy, right? I am sorry, but no one has a right to cheap or overworked labor.

Guest's picture
J.

like I said multiple times, if you are getting $X a week then there is no point to take a job that pays less than that.

Saying it multiple times doesn't make it so.

In addition to the social reasons for getting a job (any job), and the potential benefits like health insurance, the whole tax system greatly favors getting a low-paying job (over collecting unemployment). For instance, you can only qualify for Earned Income Tax Credit if you have (wait for it!) earned income! Also, you will not be paying into the social security system, so you won't be eligible for things like disability, death benefits for relatives, retirement benefits, etc. etc. These things may be theoretical to your 20-something friends, but to folks like me with kids, they are very real.

The system almost always favors those with earned income, such that in most cases it's preferable to take the job... if you can get one (big if).

Xin Lu's picture
Xin Lu

J.  You can get the Earned Income Tax Credit if you earn an AGI that's below a certain amount  and it is fairly low.  I think for a single person the qualification is that you have to have earned less than $12000 a year.  For a person with 2 kids you have to earn less than $38,000 a year for 2008.  So for a single person collecting $2000 a month on unemployment, it is not worth it to earn $12000  a year and get a tax credit.  If a person is earning $38,000 then they would be doing better than unemployment, then it would be worth it to take the job anyway.  Basically, I wouldn't recommend it to anyone to take a job that pays half of unemployment for the sake of the EITC.   It really depends on the situation. 

Social Security is a system that is based on the credits you have already accumulated.  I believe you can get social security disability benefits as long as you have several years of work based on your age and you qualify for the retirement/death benefits if you have 10 years or 40 credits of work.  It doesn't matter if you are unemployed now as long as you already qualify for the benefits based on your entire work history over your lifetime.

Health insurance is definitely a good incentive, though. 

 

Guest's picture
AnnJo

are not necessarily lazy, but they have traditionally traded higher "benefits" for lower overall wages and higher chronic unemployment, as well as much reduced labor market flexibility. Between 1991 and 2005, average wages after inflation in Germany DECLINED while ours increased. For most of a generation, Germany's unemployment rate was considered excellent if it got down to levels that we would call a severe recession. Our economy has added millions of new jobs (most of which are still there in spite of this recession) for our growing population and our immigrants, while Germany has added no new jobs and its labor force has remained about the same size for years.

If you've never been an employer, there is something you probably don't understand. An employer looks at the total cost of an employee when deciding whether to hire, including wages, health coverage, employment taxes, "paid time off," training costs, severance costs, everything. If it costs an employer $60,000 to add an employee, it is irrelevant to the employer how much of that goes to wages, how much to employment taxes, etc. The total cost is all that counts. That new employee has to add much more than $60,000 to the employer's bottom line to make it worth hiring him/her, because that employee has to be supervised, supplied, officed, etc., and of course, make a profit, because otherwise there's no point in the employer existing.

From the employer's standpoint, the cleanest system would be to pay an employee that $60,000 (less employment taxes) and let the employee decide to spend it. One employee might prefer to spend some of it to "buy" vacation time or sick leave, another might prefer a particular health plan, etc., and the employer could dispense with most of its HR department. But most employees are too ignorant to figure that out, and they allow themselves to be manipulated by offers of various "benefits" in lieu of money. The government has also distorted the picture by making some of those benefits pre-tax.

If you think that an employer actually "gives" paid time off, you are deluding yourself. Employers don't "give" anything, and why should they? The employer has adjusted that employee's overall compensation package to account for the vacation time. Every employee "buys" his/her vacation and sick leave time through lower wages, whether they know it or not. And that includes Germans.

The fact that Americans don't usually get as much "paid time off" as Germans is simply because Americans by and large still prefer to take the money, rather than the time. Those Germans who would rather have the money emigrate to the U.S.

Xin Lu's picture
Xin Lu

As to the discussion about vacation days in America, I think AnnJo is right in saying that  any paid vacation is a part of your wages.  You can always negotiate for more or less vacation for pay when you get a job offer, but most people don't.  Also, in pretty much all the places I've worked at, if you ran out of vacation days you can choose to take the days unpaid as long as your work isn't severely interrupted.  I think that's perfectly fair. 

Guest's picture
J.

Xin, why are you assuming that your job will run from Jan 1 to Dec 31?

You may have had no EI all year, and getting a job in the last few months of the calendar year, even if you only earn a few thousand dollars, will enable you to qualify for the EITC.

Anyway, folks can't usually time their employment so precisely -- you don't know when the next job offer will come along if you turn one down. But the tax incentives for earned income vs. unemployment insurance are there.

Xin Lu's picture
Xin Lu

J, I didn't want to propose that scenario because in a way it seems like milking the system even further.  The EITC is a refundable tax credit, which means people don't have to pay income taxes to receive it.  So yes, a person could technically collect unemployment for part of the  year and then get a job that pays $12000 for the rest of the year and get a few thousand dollars back.  In that case it is better than unemployment because the total amount of money received by that person during the last few months is quite a bit more more than unemployment benefits.  So I guess the person in question really has to consider every single benefit available to make an informed decision. 

I still think that people would be wary with taking a job that pays lower than their unemployment benefits because once they take on a full time job it is much harder for them to take time out to find another job.  Even though the EITC gives a benefit in the last few months of the year, they may be stuck with the low paying job for a while.  If they could use their unemployment benefit to search for a better job fulltime I think some people would choose that option instead, and thus prolong the amount of time they're unemployed.  Like I said, it's not necessarily a bad thing.  

Guest's picture
AnnJo

This is getting pretty far afield from the topic of this post, but in fairness to Phil Gramm I have to take issue with Guest above. Gramm gets blamed by partisan ideologues for the mortgage crisis because he sponsored a bill back in 1999 to encourage competition between banks and other financial institutions, competition usually being a good thing for consumers. It was approved by the vast majority in the House and by unanimous consent in the Senate, and signed into law by (drumroll) Bill Clinton.

And Bill Clinton promised to veto the legislation unless it included a provision prohibiting banks from getting regulatory approval for mergers unless they were lending enough to subprime borrowers. So, yes, Phil Gramm agreed to that amendment, and that certainly did help bring about the subprime crisis, but it hardly seems fair to blame him for something Bill Clinton insisted on.

And interestingly enough, even the people who try to shift the blame to Gramm don't seem to be proposing to change the law to force banks back out of other financial service sectors and vice versa.

The far bigger problem always was the combination of 1) forcing banks to lend to subprime borrowers (creating a whole lot of risky loan products which ended up being used by lots of people who were not subprime) and 2) the perception that the U.S. government was guaranteeing the resulting debt through Fannie Mae and Freddie Mac. And who refused to reform Fannie Mae and Freddie Mac? Well, it was not Phil Gramm, who left Congress in 2002. And it was not the Bush Administration, which was pressing for reform starting at least in 2003 and even earlier. If you judge by who got the biggest campaign contributions from Fannie Mae and Freddie Mac, it was Chris Dodd, John Kerry, Barack Obama and Hillary Clinton, in that order.

In a way, maybe this comment does relate to the topic.

The obvious answer to the question, do generous unemployment benefits prolong the length of unemployment is, absolutely, yes. This has been proven time and again through economic analysis, and the fact that so many people commenting here get all hot and bothered about that is a big part of our national problem, which is an unwillingness to face unpleasant facts. SOME people DO delay returning to work until their benefits run out. Not all, but some. Therefore, the longer the benefits, the longer the average period of unemployment. Of course, not all people on unemployment are lazy, but those who are lazy will take advantage of the system. Duh.

Likewise, lending money to people with poorer credit WILL cause more defaults. Of course not all people with poor credit are deadbeats, but a lot of deadbeats do have bad credit, and some of them will get loans when lending standards are loosened. This is so obvious it is amazing it has to be said, but apparently a lot of people would still rather everybody just shut up about unpleasant truths.

Guest's picture
Rosa

For every person who sticks it out for a better job because unemployment makes it possible, there's another person at the end of their rope who will take that job.

Higher unemployment benefits keep people from falling into poverty, and also ease the downward pressure on wages that come from too many unemployed people.

And really, if employers are so damned concerned about "total employment costs" maybe they should lobby for government-funded universal health care.

Guest's picture
david in norcal

Why would someone want to stay unemployed? Because even $12/hour jobs are not easy to find these days.

Because people lose their health benefits or have to pay out of pocket.

Because people have existing rent to pay (they aren't going to be able to downsize and get accepted to a smaller place while unemployed --you didn't even consider this).

Because people have existing mortgage payments and they aren't going to be able to sell in this market.

Because people have children to clothe, feed and house.

And the best reason for generous unemployment benefits (and California's is a pittance compared to most wealthy nations): The nations with highest standard of living for the greatest proportion of their people have: generous social programs, strong safety nets for the unemployed, universal health care regardless of income, strong unions or protections for labor and so forth.

It just so happens it's better for the economy and people living in the country if people aren't scared out of their wits they will become homeless and hungry. It just so happens it's better for a country if their children don't do without health care because their parents can't afford it.

So, you can cheap out and thereby motivate people, but the proof in the pudding is that the nations that do the opposite seem to have the wealthiest citizens across the board as well as the shortest workweeks, best health care (and most affordable), etc. etc.

I would also recommend that you develop some sensitivity to people that are madly looking for work for many months now and post a more thoughtful item about unemployment or don't post at all.

Guest's picture
Guest

I have heard a lot of folks say, "Why should I take a job for less than what unemployment is paying me??"

Guest's picture

I don’t think the analogy of the engineer working at a fast food place out of desperation would quite be the case. My guess is, the unemployed engineer would be overqualified for the job. They would look at his resume, and decide to pass him up, because they know he would be out of there so soon.

So, for the engineer, he kind-of has to get the high-paying job, because no employer would believe that he would stay around for the lower-paying job.

Guest's picture
AnnJo

The effect of longer UI benefits on unemployment duration has been studied to death. Although you are correct that UI benefits are typically extended during periods of higher unemployment, there is plenty of economic evidence that, irrespective of that, longer benefits CAUSE (not just correlate with) longer unemployment.

Economists have studied the average amount of time people spend looking for work at various stages during their unemployment, and there is absolutely no question that people who receive UI benefits on average spend less time looking than those who do not, and that on average they intensify their efforts considerably as the end of their UI benefits approaches, more than tripling their daily time spent in job-seeking efforts. I hope you will agree and not require "studies" to prove the obvious point that people are more likely to find work if they spend more time looking for it. As for the studies that show the relationship, if you are actually interested, start with these:

--David Card and Phillip B. Levine, "Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program," Journal of Public Economics, Vol. 78 (1-2) (October 2000), pp. 107-138;

--Lawrence Katz and Bruce Meyer, "The Impact of the Potential Duration of Unemployment Benefits on the Duration of Unemployment," Jour­nal of Public Economics, Vol. 41, No. 1 (1990), pp. 45-72;

--Stepan Jurajda, "Estimating the Effect of Unemployment Insur­ance Compensation on the Labor Market Histories of Displaced Workers," Journal of Econometrics, Vol. 108, No. 2 (2002), pp. 227-252;

--John T. Addison and Pedro Portugal, "How Does the Unemployment Insurance System Shape the Time Profile of Jobless Duration?" Economics Letters, Vol. 85, No. 2 (November 2004), pp. 229-234;

--Alan B. Krueger and Bruce D. Meyer, "Labor Supply Effects of Social Insurance," in A. J. Auerbach and M. Feldstein (ed.), Handbook of Public Econom­ics, First Edition, Vol. 4 (2002), pp. 2327-2392; and

--Rafael Lalive, Jan Van Ours, and Josef Zweimüller, "How Changes in Financial Incentives Affect the Duration of Unemployment," Review of Economic Studies, Vol. 73, No. 4 (October 2006), pp. 1009-1038.

You could also look at the average duration of unemployment in OECD countries with more generous welfare/unemployment benefits, and I believe you will consistently find that the more generous the benefits, the longer the average unemployment duration, regardless of whether the country's economy is in recession or in growth mode.

People respond to incentives. This is elementary. Maybe all the unemployed people you know really do urgently want to get a job, and maybe they really are out looking 40 hours a week, but that only means that you travel in an unusual circle; the AVERAGE worker does not respond that way. The AVERAGE unemployed worker on UI benefits (at least historically) spends about 20 minutes a day looking for work in the earlier period of UI benefits, and about 70 minutes a day in the last few weeks before UI benefits run out.

Again, given human nature, the causation here is so obvious it is hard to understand why anyone would bother to argue about it. It is only one of several factors that need to be considered when deciding whether extending benefits is a good idea, but it does need to be considered and not ignored.

The generous employment benefit structure of many European countries (along with other government policies like mandated job tenure) has led to chronically higher unemployment rates than ours, longer duration of unemployment, lower growth rates, lower average net wages after taxes, and higher proportions of discouraged workers.

They may also have contributed to the dearth of children in some European countries and declining native populations, since "job security" also means you are locked into your job and risk much more by giving it up to stay home for a few years with young children, an option much more available to American families and much appreciated by many. In Germany, for instance, only 13.7% of the population is under 15 years old, and that group is disproportionately born to recent immigrants; in the U.S., it's 20.2%.

Germany, Sweden and other countries have been trying to reform their labor laws for several years now, tightening up benefits in order to increase productivity and lower unemployment rates, with limited success. It's ironic that we seem doomed to repeat their failed experiment, even as they are struggling to recover from it.

Guest's picture
Jim

Yes there are a small minority of people that don't bother trying to find a job if they have unemployment insurance. That hardly means we should abandon the system or that its broken.

What is the optimal duration and amount for unemployment? If you increase unemployment then people will take longer to find jobs. Thats not just lazyiness or people taking vacations, its a lot of people making logical choices to try to continue to find suitable work at their skill level rather than settle for underemployment or drastic life changes.

Unemployment maximums differ in every state. $475 is a high benefit and most states don't hit that level. To get the maximum benefit in general you have to have higher wages. So nobody is getting unemployment above the wages they used to get. TO settle for a job making less than unemployment is to settle for a job making much less than your previous job. Most of us don't *want* to take a large pay cut after unemployment. That is a last resort. The worse the economy is then the harder it is to find a job at any level.

Unemployment is not welfare. It is an insurance system. Workers do not directly fund unemployment. SO poor people are not paying for the unemployment benefits. Unemployment benefits are paid for by employer insurance. The insurance rate is directly impacted by the businesses unemployment rates. If a business rarely lays off people their premiums will stay lower. If a company has high layoff rates then their workers compensation fees go up.

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AnnJo

Unemployment is not welfare. It is an insurance system. Workers do not directly fund unemployment. SO poor people are not paying for the unemployment benefits. Unemployment benefits are paid for by employer insurance. The insurance rate is directly impacted by the businesses unemployment rates.

The extension of unemployment benefits in the Obama stimulus package IS welfare, it is not being paid for through either state unemployment taxes or federal FUTA taxes; it is being "paid" for through general taxes and deficit spending. Regular unemployment insurance is indirectly paid for by employees, since it is part of the employer's labor cost which would otherwise have been paid to the employee.

Guest's picture
Guest

Annjo, you seem very knowledgeable about Germany’s unemployment rate. Also what is the average German salary in US dollars, and how much does the average German pay for health insurance? You may already that the European countries calculate unemployment differently than in the US. Last summer my families spent three weeks in Germany visiting family, and were impressed over the low levels of poverty.

BTW/my husband owns a HVAC company that employee 12 people so we do have a good understanding of employee compensation. The biggest problem for employers is healthcare.

Xin Lu, are you suggesting that I can get a job from Wal-Mart or CVS and negotiate vacation time?

Guest's picture
Guest

It was a good run. For over three years, the number of unemployed in Germany had been dropping. But statistics for December show that the trend has come to an end as the economic crisis hits the labor market.

For years, Germany had seen its unemployment rate drop steadily, all the way down to a November total of less than 3 million. That downward trend, though, has now officially come to an end. According to a report released on Wednesday by the Federal Labor Agency, which tracks German unemployment statistics, the number of jobless rose by 114,000 in December, bringing the total to 3.102 million or 7.4 percent.

http://www.spiegel.de/international/business/0,1518,599969,00.html

Xin Lu's picture
Xin Lu

Guest#66, if you never ask the employer then you will never know if they are flexible on vacation/pay.  In one company I worked for I asked for more pay and they said no, so I asked for more stock options and also days off, and they gave that to me. So you should always negotiate somewhat no matter who is offering the job.  If they say no, so what?  If you are afraid of losing the offer you shouldn't be, because it takes time for companies to recruit people and they expect people to negotiate. 

Guest's picture
AnnJo

a person who makes $250,000 in one year does not necessarily make it every year. Plenty of very middle to lower income people will end up in that tax bracket once in their lives:

The small business owner who sells his business to retire will be "rich" one year out of his life, and end up paying out much of what should have been his retirement fund to the government.

The widowed elderly homeowner who sells her house of 45 years because she needs to move in with one of her kids might find herself paying high taxes on gain that is really mostly inflation.

Years ago, if you had a fantastic year, you could income-average it over five years, so the higher marginal tax rates didn't trap so many "non-rich" people, but that was done away with, probably because it made it harder to pretend that it was only "the rich" the government was trying to soak.

Besides which, given the high income mobility in our country, a lot of the fortunate people today are the less fortunate people of yesterday (and sometimes vice versa).

But most of the "fortunate" are exactly the people Andrew talks about, the ones who work like crazy and make the most use of their talents.

I, for one, am one of the less-fortunate not because I CAN'T earn $250,000 + but because I can earn a perfectly adequate living (for me) in about 10 hours a week and I'm basically lazy. If I wanted to work 60 hours a week, I could probably earn as much as $400,000, but with effective marginal tax rates approaching 50% (about 38%+ income tax rate after all the deduction phase-outs and AMT effects, and 15.1% in combined employer/employee FICA and Medicare for part and 2.9% Medicare on the rest), I just don't feel motivated to work that hard at work I don't enjoy, only to split half the take with a bunch of idiot politicians who will do more harm than good with what I give them.

Obama's tax raises are going to make a lot of people who are less lazy than I am but don't adore their work decide it just isn't worth it to work as hard as they've been doing (especially if they live in states that have state income taxes which are also rising).

Those increases are not going to raise anywhere near the amount of revenue that he expects. They never do. But higher tax rates will punish those nasty "fortunates," and envy/class hatred rather than revenue-raising seems to be the prime motivator for most who support them.

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Guest

She's the next person I expect to see comment here, based on the general trend.

Guest's picture
Guest

Poster 71, AnnJo's information seems very Fox News/CNN oriented. Anderew's post, on the other hand, reminded me of Joe the Plumber. However, no offence to either, Annjo or Andrew, I enjoyed reading your well-written posts. It is nice that you provided sources Annjo. I can't agree with any of your thoughts, but then again, I stopped listening to corporatly sponsered media a while back.

Oh heck, somebody has to look out for the wealthy.

Guest's picture
Guest

Guest 46 pointed out that the commenters who were very mad at this article could not write proper English. It seems like commenter 72 also belongs in the "can't spell" camp. AnnJo writes very well and she provided a lot of reasonable evidence to support her points, but it is impossible to convert idiots. I found her posts very educational, and I appreciate that she took the time to write her comments on this topic.

Guest's picture
Guest

If you look closely, AnnJo uses random sources without actually quoting anything. Secondly, one’s point is not proven accurate by good writing and proper use of a spell-check. AnnJo claims to only work ten hours each week, so she does have more time to write long posts with questionable sources. Also, no one in this forum brought-up the legitimacy of her posts; except for AnnJo herself, as she joked about receiving payment for her efforts. There have been many stories about the RNC hiring people to “infatuate” blogs to put forth the conservative viewpoint. The fact is, AnnJo follows the “wisdom” of Phl Graham, who pushed for massive deregulation, in 1999, which resulted in sub prime lending.

Guest's picture
AnnJo

have a big advantage over more fact- and reason-based thinkers; all they have to do is label any inconvenient ideas as coming from someone they don't like (Ann Coulter, Fox News, corporate-sponsored media), and that relieves them of any need to listen and consider information on its own merits.

I'll keep an eye on my mailbox for those checks from my corporate sponsors. They seem to be running a little late!

Guest's picture
Guest

My question is...

Who is posting comments while they are at work getting paid right now??

Get back to work and mind your own business. And bite your tongues before you are faced with the same financial hardship that faces 5.5 million Americans right now.

And...don't forget to save your money!!

Guest's picture
Dave

Xin and AnnJo....Good job! Some people just can't handle a discussion, let alone a debate.
$475 a week...?!?!?!? I make a modest 6figure income working construction. Yes...construction! I myself, most likely, will be one of those who will be filing for Unemployment very soon as my current project will be completed and there is nothing on the schedule for future projects. Receiving $2k a month will make a HUGE impact to my financial stability. To maintain, my savings will decrease by over $3k per month. However, I have developed a strategy for retaining my savings (mostly) and live, by using the unemployment benefit. My only question is.... can I collect if I'm staying out of country?
BTW...I am one of those who would take the full 79 week term, if possible...while I "search" for that near pefect job.

and No...this is not an April Fool's Day posting..Lol!

Guest's picture
Guest

I totally disagree with your assumptions on people dealing with unemployment insurance. I do not know much about California criteria but in Kansas some of the rules are as follow:

1. To remain on UI you have to accept a position if it is 75% or greater than your last salary.

Ex. Someone who was making 40,000 in their last job must accept a job if it is greater than or even to 30,000. Otherwise, you lose benefits.

2. Attending school is forbidden unless you are on a WIA or TRA program in which you are allowed training while receiving UI benefits.

3. You must keep records of all resumes/applications submitted with any followup information such as interviews with names and date included.

Furthermore, I wonder if you have considered in times of high unemployment people are on extended benefits for longer amounts of time because of a smaller job pool instead of freeloading?

Xin Lu's picture
Xin Lu

Guest 77, you do have to accept the position you are offered in California.  So that means that people wouldn't even apply to the lower paying positions because they know they have to accept it.  Additionally, you cannot be attending school, but like I said in my article my friend is preparing for graduate school.  This means studying for tests and getting essays together.  The unemployment office doesn't even know that he is doing this. 

Guest's picture
SheRa

Dave--I don't think it's legitimate to collect while staying out of country. The point of unemployment is to give you money while you search for another job. Going away defeats that purpose. I don't know if you could get caught while being out of the country, but it would certainly be unethical.

Guest's picture
wildgift

During economic recessions, when unemployment rises, you sometimes have to extend benefits. Things take time. People need time to study or retrain. Businesses need time to figure out what will rescue the business, and then start hiring.

Do we really want all the unemployed people to become homeless while they readjust? Do companies want the labor force to be homeless?

@Andrew - if everyone worked 60 hours a week, you'd have to work 80 to get ahead. How would you like that?

See, me, I have a sense of proportion. I want the work week reduced to a nice-and-lazy 30 hours a week. Then, I could continue with my 40-45 hours a week of working (not including the 10-20 I put in studying outside of work) and say I'm a real hard worker.

@Annjo - if you can make enough money on 10 hours a week, great. If others will stop working because the taxes take too much, that's fine too. This creates opportunities for other people to try and do the work you are doing.

You should enjoy your fortunate situation. Just don't assume everyone else can do what you've done.

Guest's picture
jb

Really, I don't know where you get your proposition that an unemployed person would be more inclined to take the crappier paying job if benefits were less. Do you know what it is like to be unemployed today? I ask you, what "crappier" job? There are not jobs. Period.

I've gone to job forums and meetings and met people with excellent skills that have been unemployed since last spring.

Maybe a year or two ago it would have been reasonable to assume that 26 weeks of unemployment benefits were enough to tide one over until he/she finds a job but not today. I've been unemployed since last December. I have applied for many jobs and signed up at temp agencies. I have many years of experience in my field. I have been called for no interviews. None. Currently I am taking some college classes to enhance my job qualifications in other related fields. Hopefully by the time the classes are finished the job market might be a little better. Personally I'd be surprised if I find a job, any kind of job, before maybe this July.

I can only be thankful to know that the benefits will extend up to 79 weeks and I have at least that long before I have to face the specter of losing my apartment because I can't pay the rent.

Guest's picture
Justin

Reducing unemployment insurance is not a solution to get people back into the workforce or fix this economy, how about we focus on the other side which is increasing the amount of jobs available?

If there were more jobs out there, fewer people would be unemployed and less money would be taken from unemployment insurance.

Perhaps we should talk more about fixing the cause instead of the effects?

Guest's picture
Guest

It really hurt my head and eyes to read comment #86. GaBs, if you learned to write English better perhaps you would have a better chance at getting a job. Seriously, I hope you spellchecked your resume. Better yet, get some career counselor to edit your resume.