The Problem With Unemployment Benefits: On Slackers Part II
In his “unemployment benefits primer,” Washington Post columnist Ezra Klein makes the following assertion with which I completely agree:
North Dakota…has a very low unemployment rate. It doesn't make sense to have 99 weeks of unemployment benefits in a state where unemployment is 2.8 percent. That's when unemployment benefits really do discourage work.
That point is consistent with the anecdotal evidence member Scott Reusser wrote about recently:
Of the two dozen or so of my acquaintances who have collected unemployment, every single one--not most, every single one--has gamed the system. They disgust me, but it's the system that corrupts. Most often the con involves working for cash while running out the string on benefits--the longer the string, the longer the run--then going "on the books" only after the government checks stop.
It’s Klein’s next assertion that seems rather flimsy:
But it does make sense to have 99 weeks in Nevada, where the unemployment rate is 13.7 percent....We should probably be further shortening the unemployment benefits in low-unemployment states like North Dakota, while further lengthening them in places like Nevada, for instance.
So according to Klein it doesn’t make sense to offer unemployed North Dakotans 99 weeks of unemployed benefits because that would incentivize them to remain unemployed, but it does make sense to offer Nevadans 99 weeks of benefits because…they’re unaffected by the same incentives as North Dakotans?
The more holes in the system, the more ways to exploit the system for personal gain. It doesn’t matter whether you live in Nevada, where the unemployment rate is 13.7%, well above the 9.8% national unemployment rate, or if you live in North Dakota, where the unemployment rate is far below the national average at 2.8%. If you’re unemployed -- especially from a job that wasn't paying much to begin with -- you’re incentivized to stay that way until your benefits expire (or to work for supplemental cash under the table until your benefits expire).
As the chart illustrates, states with the highest unemployment rates in the nation – take for example California (12% unemployment), Nevada (13.7%), Michigan (12%), and Florida (11.6%) -- offer 99 weeks of unemployment benefits, whereas states with low unemployment rates – North Dakota (2.8%), South Dakota (4.1%), and Nebraska (4.2%) – offer only 60 weeks of unemployment benefits.
If we accept the premise that an increase in the duration of unemployment benefits would exacerbate unemployment in a place like North Dakota, does it not follow that an increase in duration of unemployment benefits in Nevada will exacerbate the situation there as well? And if this is indeed the case, would it be better to do away with taxpayer funded unemployment insurance altogether, or to set a uniform duration of unemployment insurance across the country?
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Re: The Problem With Unemployment Benefits: On Slackers Part II
Could all of this all be due to the fact that in North Dakota people tend to be honest -- while in Nevada they tend to be crooks? I am struck by the fact that the gambling industry and the associated unions lined up behind Harry Reid in the recent midterms. It is surely no accident that he is trying to make online poker legal.
Dec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
How about we convert part of the unemployment benefit extension in Nevada from weeks of benefit into a lump-sum relocation assistance package that moves the long-term unemployed to North Dakota, where they need workers?
This is a key aspect of the distortion that unemployment benefits cause: they insulate the unemployed from the need to make choices about moving to where the jobs are -- geographically, demographically, educationally, or industry-wise.
Re: The Problem With Unemployment Benefits: On Slackers Part II
I envision unemployment insurance to lead to some sort of death spiral that looks like this:
High Unemployment --> Govt doles out more benefits --> Even higher unemployment --> Even more benefits (in the form of extensions, etc)
Edited on Dec 15, 2010 at 3:14pmMay '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
I hesitate to generalize about the crookishness of Nevadans, but it does strike me that peer pressure is stronger in areas with lower population densities.
Edited on Dec 15, 2010 at 3:52pmDec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
It may have to do with the fact that choosing to live in North Dakota takes a different type of person -- perhaps one who's tougher and less oriented to leisure -- than one who chooses to live in Clark County, Nevada. Las Vegas has a reputation of being one of those places where the streets are paved with gold... leading to a glut of job-seekers moving there and driving the labor market into extreme surplus.
May '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Yeah, if the gamblers stay home and gamble on the internet then they can fire all of those unionized hospitality workers. And then Harry can explain how he "helped' the average Joe in Nevada.
Re: The Problem With Unemployment Benefits: On Slackers Part II
Stuart Creque: How about we convert part of the unemployment benefit extension in Nevada from weeks of benefit into a lump-sum relocation assistance package that moves the long-term unemployed to North Dakota, where they need workers?
This is a key aspect of the distortion that unemployment benefits cause: they insulate the unemployed from the need to make choices about moving to where the jobs are -- geographically, demographically, educationally, or industry-wise. · Dec 15 at 3:08pm
Exactly! The distortion is made more severe with the disparity in benefits durations. If you're in a state with 99 weeks of benefits, you would not want to move to a state with only 60 weeks of benefits even if you thought it might be easier to find a job there.
Dec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Diane Ellis, Ed.: I envision unemployment insurance to lead to some sort of death spiral that looks like this:
High Unemployment --> Govt doles out more benefits --> Even higher unemployment --> Even more benefits (in the form of extensions, etc) · Dec 15 at 3:13pm
Edited on Dec 15 at 03:14 pm
High Unemployment --> Government extends benefit period --> Longer-term unemployed --> Deterioration of job skills, work habits and morale --> Even longer-term unemployed --> Gov't extends benefit period further --> Even longer-term unemployed....
It can lead to the creation of a dependent class of people who used to know how to work but have forgotten what it was like and what it takes.
May '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Stuart Creque:
This is a key aspect of the distortion that unemployment benefits cause: they insulate the unemployed from the need to make choices about moving to where the jobs are -- geographically, demographically, educationally, or industry-wise. · Dec 15 at 3:08pm
Oooh, that's a good point.
Klein is also advocating a massive transfer of wealth from states that are well run to states that are poorly run, a bailout by another name.
DeMint (I think) proposed a system where at some point benefits would become borrowing against future earnings, which would provide assistance while removing the incentive to collect unnecessarily.
Jun '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
And also added efficiencies in the labor market by raising the wage expectations above the wage rate that would begin to clear the market. There is no shortage of autoworker or coal miner jobs, just a shortage of jobs at the union-inflated rate. Eg, WV is full of union coal miners who haven't worked in years even though non-union pits are hiring.
Dec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Diane Ellis, Ed.
Stuart Creque: How about we convert part of the unemployment benefit extension in Nevada from weeks of benefit into a lump-sum relocation assistance package that moves the long-term unemployed to North Dakota, where they need workers?
This is a key aspect of the distortion that unemployment benefits cause: they insulate the unemployed from the need to make choices about moving to where the jobs are -- geographically, demographically, educationally, or industry-wise. · Dec 15 at 3:08pm
Exactly! The distortion is made more severe with the disparity in benefits durations. If you're in a state with 99 weeks of benefits, you would not want to move to a state with only 60 weeks of benefits even if you thought it might be easier to find a job there. · Dec 15 at 3:17pm
The Joads would not have left Oklahoma if they had unemployment benefits yet to be exhausted. They had roots there -- they were part of the local culture. Necessity sent them to California's orchards. If you're in a state with X benefit weeks and you're at week X+1, you should be willing to move ANYWHERE there's a job.
May '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Btw, in the first "On Slackers" we had a heated discussion about what exactly constituted "gaming" the system. In the week or so since, I've heard two callers on talk radio mention (incidentally and without shame, it seemed) that they were using their benefit-collection period to go back to school to get an MBA or some such.
This is cheating, too, no?--albeit a little more socially acceptable than the situations I described. Right?
This whole scene is corrupting otherwise decent people.
Edited on Dec 15, 2010 at 3:31pmDec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Scott Reusser: Btw, in the first "On Slackers" we had a heated discussion about what exactly constituted "gaming" the system. In the week or so since, I've heard two callers on talk radio mention (incidentally and without shame, it seemed) that they were using their benefit-collection period to go back to school to get an MBA or some such.
This is cheating, too, no?--albeit a little more socially acceptable than the situations I described. Right?
This whole scene is corrupting otherwise decent people. · Dec 15 at 3:29pm
Edited on Dec 15 at 03:31 pm
Not sure this is defined as cheating. The Employment Development Departments generally encourage worker retraining -- the question is whether these individuals are still seeking work and would put their MBAs on hold to accept jobs. (Which would be a good idea, because their new employers might well offer tuition assistance.)
Re: The Problem With Unemployment Benefits: On Slackers Part II
Scott Reusser: Btw, in the first "On Slackers" we had a heated discussion about what exactly constituted "gaming" the system. In the week or so since, I've heard two callers on talk radio mention (incidentally and without shame, it seemed) that they were using their benefit-collection period to go back to school to get an MBA or some such.
This is cheating, too, no?--albeit a little more socially acceptable than the situations I described. Right?
This whole scene is corrupting otherwise decent people. · Dec 15 at 3:29pm
I have an acquaintance here in California who was laid off from his job as a restaurant manager. He decided he could use a vacation and so he collected unemployment benefits for the full duration allotted, and only toward the very end of the benefit payout decided to look for a new job. His wife worked and provided sufficient income for the family, so the unemployment benefits were a nice supplemental income. This seems like cheating to me too.
Aug '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Diane Ellis, Ed.:It’s Klein’s next point that seems rather flimsy:
I would never, ever, have guessed that in the United States someone could receive Unemployment Insurance benefits for almost two years.
Please forgive this expression of schadenfreude, but when I read these sorts of articles I cannot help but take note of the policy areas where we take a more conservative approach in Soviet Canuckistan.
The unemployment rate in the Canadian Arctic is, at 25 per cent, the worst in North America (assuming that Mexico's unemployment figures by state is accurate).
In the Yukon, Northwest, and Nunavut territories, one can receive Employment Insurance benefits for a maximum of 45 weeks, and one must have worked at least 1330 hours over 26 weeks to qualify for that many weeks of E.I. The average weekly benefit in Canada and the US is about the same, approximately $300 per week.
Please feel free to mention that the next time one of your liberal acquaintances claims that Canada is oh-so more compassionate than the United States.
Edited on Dec 15, 2010 at 5:10pmDec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Diane Ellis, Ed.
I have an acquaintance here in California who was laid off from his job as a restaurant manager. He decided he could use a vacation and so he collected unemployment benefits for the full duration allotted, and only toward the very end of the benefit payout decided to look for a new job. His wife worked and provided sufficient income for the family, so the unemployment benefits were a nice supplemental income. This seems like cheating to me too. · Dec 15 at 3:37pm
The EDD is supposed to take a dim view of UI benefit recipients who aren't actively seeking employment, though they don't make you physically show up every week anymore.
Jul '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Look, as a society, we've agreed that we do not wish to consign the unemployed to a state where they beg in the streets, steal, or prostitute themselves or their children in order to put bread on the table.
An unemployment-insurance scheme may not be ideal and it may be subject to fraud, but I've yet to hear anyone on Ricochet or elsewhere suggest a better alternative.
Dec '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Kenneth: Look, as a society, we've agreed that we do not wish to consign the unemployed to a state where they beg in the streets, steal, or prostitute themselves or their children in order to put bread on the table.
An unemployment-insurance scheme may not be ideal and it may be subject to fraud, but I've yet to hear anyone on Ricochet or elsewhere suggest a better alternative. · Dec 15 at 5:06pm
I don't believe the argument here is against unemployment insurance. It's against an open-ended "insurance" scheme that (1) outstrips the premiums paid into the system, (2) creates labor-market distortions and (3) subtly transforms over time from transitional assistance that gets people back to work into just another general assistance welfare program.
The better alternative, of course, is to stop treating the unemployment problem as one of entitlement spending on the unemployed or incentives for employers and start treating it as a matter of creating economic growth and the concomitant demand for labor.
Sep '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Unemployment insurance should be treated like insurance: you pay a defined premium and, if needed, are entitled to a predetermined benefit. If you need help after that, that's Welfare not insurance.
Sep '10
Re: The Problem With Unemployment Benefits: On Slackers Part II
Skill testing question. In 2008, North Dakota's surplus was $1.0 billion on 687,000 people. Does anyone here know why?