The Economic Follies of Extending Unemployment Insurance
By Casey Given
Unfortunately for the President and House Minority Leader Pelosi, basic economic contradicts their political push. A vast literature of analyses have shown that UI creates the same perverse incentives as any other welfare program, prolonging the time it takes employees to find work and discouraging employers to hire new help through increased taxation.
Ironically, the most damning studies come from President’s Obama’s own economic czar. Alan Krueger, the sitting Chairman of the Council of Economic Advisors, has published no less than three studies in the past ten years exposing UI’s unintended consequences. One 2002 article for the National Bureau of Economic Research concluded that “[t]he empirical work on unemployment insurance (UI) and workers’ compensation (WC) insurance finds that the programs tend to increase the length of time employees spend out of work.” Another 2008 report for the Institute for the Study of Labor concluded, “job search is inversely related to the generosity of unemployment benefits.” Finally, his latest study in 2011 for the Brooking Institution concluded that unemployed individuals search for jobs less, sleep more, and become more depressed the longer they are on UI.
Unsurprisingly, Kruger’s studies show UI recipients experience the same welfare incentives as many other government programs. With unemployed individuals currently eligible for up to a year and half of free checks from the government of approximately $300 a week, it’s no surprise that so many are in no rush to find a job. In fact, another famous study by Lawrence Katz and Bruce Meyer, respectively of Harvard and Northwestern University, found sharp increases in reemployment right before UI benefits run out.