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Unemployment Benefits and Costs

by Elaine Schwartz    •    Jan 13, 2012    •    219 Views

99, 26 or somewhere in between?

At the end of February, Congress again will have to decide about the length of unemployment insurance (UI) Described by the state of California to its residents, 99 remains the maximum number of weeks for receiving UI. Had Congress not acted during December, the benefit period would have reverted to 26 weeks.

How to decide what to support? Here are 4 possibilities:

  1. Assess cost: UI is a program that is paid for by state trust funds that receive federal/state taxes. According to this GAP report, a majority of the states (map, p.10) had relatively weak trust funds that needed loans from the federal government. As of the end of 2009, no state had enough to cover 12 months of benefits.
  2. Compare duration with other countries: Explained by University of Chicago Professor Casey B. Mulligan with a 2005 graph, the U.S. provided benefits for a relatively short time. Looking at OECD countries, the 3 at the top, Australia, New Zealand and Belgium, offered unending benefits to those who qualified. At the bottom were Italy, the U.K. and last, the U.S (6 months). 
  3. Compare duration with other recessions: Using 92 weeks as the maximum, Dr. Mulligan displays a spike in Nov. 2011 and Dec 2009. Next were Dec. 2008 and Feb. 1992 with federally mandated benefits lasting close to 72 weeks. After that, Mar. 2002 and Apr. 1975 are at 66 weeks or so.
  4. Consider incentives: People who support longer lasting benefits say that when the money is spent, it stimulates the economy. Those for a shorter time period believe that benefits are a job search disincentive.

The Economic Lesson

Perhaps we should ask if unemployment is cyclical or structural. Cyclical unemployment subsides when the business cycle returns to prosperity. By contrast, structural unemployment will not go away because it reflects a changing economy that has eliminated “outdated” skills and noncompetitive industries.

An Economic Question: How might your opinion about the duration of unemployment benefits relate to whether joblessness is cyclical or structural?

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