Extending benefits won’t help

Though many Democrats call for an extension to unemployment benefits, we will not benefit from it.

by Derek Olson

At the end of 2013, extended unemployment insurance expired, leaving most states with 26 weeks of benefits for the jobless. Democrats continue to advocate reinstating the extension that funded at least 47 weeks of insurance for 40 states, three of which had benefits lasting as long as 73 weeks. 

The traditional view on unemployment insurance is that it presents a tradeoff. Unemployment benefits tend to increase the unemployment rate by altering the incentives between work and non-work. However, they give unemployed people some flexibility in finding a higher-quality job. Without the benefits, they would be more likely to take a lower-paying job, which decreases their contribution to the economy.

Many Democrats viciously attack Republicans who mention that unemployment benefits will increase the unemployment rate. This is not a controversial view. It’s basic economics, confirmed by empirical evidence. For example, a May 2013 study from the National Bureau of Economic Research found extended unemployment benefits caused a 0.4 percent increase in the unemployment rate following the Great Recession. Yet, that doesn’t stop Democrats from accusing their opposition of lacking compassion for the jobless.

Suppose a single, unemployed person is offered a job. Instead of accepting, he or she decides to hold out for a better offer because unemployment benefits afford him or her the flexibility. If just one person makes that decision, unemployment benefits have increased the unemployment rate. Additionally, jobless benefits can deter unemployed individuals in Nevada from moving to high-job growth states like North Dakota or Texas. 

Some economists say extended unemployment benefits can act as Keynesian stimulus while the economy is still depressed. However, if we’re interested in Keynesian stimulus, there are far better ways than using policies that needlessly increase unemployment.

We are now more than four years out of the recession. With unemployment insurance back to its traditional duration, perhaps we will finally see the dynamic recovery we’ve been waiting for.