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Unemployment Benefits and A One-Handed Economist

Jul 8, 2010 • Economic Debates, Economic Thinkers, Government, Labor • 66 Views    No Comments

Called “a compromise of a compromise of a compromise,” the Senate failed to extend unemployment benefits to the 2 million individuals scheduled to lose them on July 12.  

Thinking economically, it is tough to definitively assess the decision. On the one hand, as a $34 billion bill, the deficit will grow and some economists wonder whether more generous benefits actually encourage “jobless workers to be pickier in their searches.” But on the other hand, one economist estimates that every dollar of jobless benefits adds $1.61 of stimulus. (This sounds like Harry Truman’s search for a one-handed economist!)

Extended U.S. benefits originated in the $787 billion stimulus bill that was passed during February, 2009 when the number of weeks and their dollar size were increased. Since then, the path in Congress to extending benefits further has been complicated.

The Economic Lesson

Looking at unemployment, economist Arthur Okun takes us to the GDP. Okun’s Law states that for every 3% rise in the GDP, after the GDP has sustained a trend level for a year, the unemployment rate will drop by 1%.

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