Extend Unemployment Benefits? Politics Versus Economics
By Randall Holcombe • Wednesday July 14, 2010 11:56 AM PDT • 20 Comments
Unemployment benefits normally can be collected for 26 weeks, but currently they can be collected for up to 99 weeks in certain hard-hit areas. The House of Representatives has approved the continuation of extended benefits, but Senate Republicans have, so far, kept the extension from passing the Senate.
One can argue the merits of extending unemployment benefits, but a basic economic analysis will show that if you pay people not to work, more people will remain out of work and unemployed. The unemployment rate will fall faster if unemployment benefits are not extended.
The positions Democrats and Republicans have taken on the extension fits the stereotypes of the two parties. The Democrats support transfer payments to unemployed individuals down on their luck; the Republicans oppose the extension because it will increase the deficit, slow the decline in unemployment, and slow the economic recovery.
This being an election year, and with Congress and the White House being controlled by Democrats, the political logic would seem to point toward the parties taking the opposite stance. It is well-known that the incumbent party tends to do worse in poorer economic conditions. So, the Democrats should want the unemployment rate to fall, and should be opposed to an extension of unemployment benefits for that reason. Meanwhile, Republicans will benefit more at the polls in November if the unemployment rate stays high, so they should support the extension.
I have often argued that politicians tend to put their personal interests ahead of political ideology, but in this case, it would appear that argument is wrong. Democrats, who would benefit from lower unemployment, are supporting the extension of unemployment benefits that will keep unemployment higher, while Republicans, who would benefit from higher unemployment, are opposing the extension.
Are Democrats really so willing to promote their political ideology even when it is apparent it will hurt them in the November elections? Are Republicans really so willing to promote theirs that they will not “compromise” with the other party, in the spirit of “bipartisanship,” and help themselves in November?
Frankly, I’m surprised to see both parties arguing against what appears to be their own interests in trying to capture, or maintain, majority control of Congress.
Tags: Economics, Elections, Employment, Politics 
I think either the Dems don’t understand how the extension of unemployment benefits will slow the decline of unemployment, or they are banking on all those who are unemployed and/or who support wealth redistribution to vote for them in the next election.
As for the Republicans, it would be nice to believe that they actually care about their principles more than the next election (but we all know the truth)...
melody | Jul 15, 2010 | Reply
Actually, extension of unemployment benefits won’t affect the employment rate much. The recently unemployed aren’t working because there are no job openings, not because they’re satisfied with unemployment. If anything, continued unemployment benefits will stimulate the economy into creating more jobs, or at least prevent further loss of jobs.
giantslor | Jul 20, 2010 | Reply
All I can say is that, “the common view among mainstream economists is that Roosevelt’s New Deal policies either caused or accelerated the recovery,”(1) from the Great Depression. That program offered “relief for the unemployed and poor,”(2) as well as reform. Further, many Republicans were “opposing the entire New Deal as an enemy of business and growth,”(2) the very same reasons stated today, but as we can see, they were largely wrong.
Extending benefits might have an effect on slowing the unemployment decline, I don’t know, but it also serves as a jump-start to the economy because people can start spending money again.
(1)http://en.wikipedia.org/wiki/Great_Depression#Turning_point_and_recovery
(2)http://en.wikipedia.org/wiki/New_Deal
I know Wikipedia is not a source, but you can find a wider range of material along with sources there if you look.
Noah | Jul 20, 2010 | Reply
“The unemployment rate will fall faster if unemployment benefits are not extended.”
What a lazy, overly simplistic, flat-out wrong assessment of the situation. Where, exactly, are all these jobs that unemployed people are turning down? Are you offering to hire them at anything approaching a livable wage? As anyone who picks up the newspaper could tell you, brilliant, hard-working young people with graduate degrees from the finest universities in the world are there for the picking for pretty much any employer with a halfway decent job to offer.
Although — perhaps I underestimate you. Perhaps this poorly-reasoned piece is your own attempt to get yourself fired so you can start making money to sit on your ass, since by your reasoning, living on unemployment is some kind of hog-heaven fantasy, instead of the barely-covers-rent-let-alone-food-utilities-and-gas hell of powerlessness it actually is. I lived on unemployment for exactly one horrifying, frightening month before finding and instantly accepting a job that pays me less than I’ve ever made as an adult and doesn’t even come close to fulfilling me. And I’m one of the LUCKY ones.
Underemployed | Jul 20, 2010 | Reply
gianslor, Noah, and Underemployed:
Economist Lawrence Katz (Chief Economist of the U.S. Department of Labor for 1993 and 1994 and now at Harvard), in a 1990 study for the National Bureau of Economic Research (NBER):
Raj Chetty of UC Berkeley, in a 2006 NBER study:
A March 2010 economic report by Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York:
Noah: the far more historically accurate account of the effects of FDR’s New Deal policies is Senior Fellow Robert Higgs’s, which has shown that these policies delayed recovery from the Great Depression by a decade. Obama is following in FDR’s footsteps be enacting constantly-changing rules of the game—dubbed “regime uncertainty—that keep employers from investing and creating jobs.
See Robert Higgs’s “No Recovery Until America Invests Again” and Thomas Sowell: “The Myth of How the Great Depression Was Resolved” (citing our book, Out of Work):
As Dr. Higgs’s research shows, unemployment only fell as a result of 10 million men being removed from the labor force by being drafted to serve in World War II, and the Depression itself did not end until the end of World War II—following the death of FDR and the end of his policies. See the detailed summary of his findings, from his seminal book, Depression, War and Cold War, published by Oxford University Press, and my recap of Dr. Higgs’s relevant articles, “What Barack Obama Should Learn from FDR“.
Thanks for your comments.
Mary
Mary Theroux | Jul 20, 2010 | Reply
Hmmm, a couple out of context quotes by various handpicked economists followed by a seemingly irrelevant excerpt of your own book tying joblessness to trade barriers. How does this rebuke Noah’s point exactly?
I personally can believe that unemployment rates increase as jobless benefits are extended, at least in the short term. The thing is, that you haven’t really connected this idea to any affect it might have with the upcoming election or the economy.
I don’t have to mention that numbers aren’t everything in a politics, but playing to a certain persona will make or break you.
Evan | Jul 20, 2010 | Reply
Hi, Evan.
Please click on the links I provided. Our book, Out of Work does not tie unemployment to trade barriers—Thomas Sowell’s column citing the book picked up on that aspect in particular. The book itself covers *all* causes for unemployment, as one can see by reviewing its synopsis, here.
I didn’t handpick economists—they were meant to represent an across-the-spectrum range, and are mostly different stripes of Keynesians (which we are not). Although I do not believe that “consensus” proves anything, it is a fact that economists are pretty much agreed that extended unemployment benefits—as well as legislation like minimum wage laws—increases unemployment.
As the adage goes, “Everyone is entitled to their own opinions, but not their own facts,” and our studies have thus far stood up to every scholarly scrutiny. We do not play to a persona—we deal in academic studies. Some people seem to think our studies “conservative,” some “liberal,” but the fact is they’re just academic, and we could care less who’s in office. Politics has no business centrally planning the economy—it doesn’t work, regardless of the motivation.
Best wishes,
Mary
Mary Theroux | Jul 20, 2010 | Reply
Mary,
You make some excellent points and provide very relevant sources. Rather than providing proof for their own observations, other people obviously choose to ignore the facts and base their opinions strictly on ‘emotions’.
There have been numerous articles quoting employers who have interviewed potential unemployed job candidates who proceeded to turn down their job offers stating that they can make the same money staying on unemployment. Obviously this does not apply to someone who was making $50k or more working and is now collecting $300/wk on unemployment. But it does apply to people in unskilled jobs, construction, landscaping, etc. Why work when you can make the same amount or even better staying home?
Also, you only have to look at all of the previous recessions that have occurred over the past 50 years. The economic, and employment recovery from each occurred more quickly in every instance WITHOUT the expenditure of hundreds of billions of federal dollars. The fact that this recession, and the subsequent non-recovery of jobs, is similar to that of the great depression is not a coincidence.
Mike | Jul 21, 2010 | Reply
This is all a very interesting discussion surrounding the opinions of economists. My take on this is from personal experience, as I think several people in this appear to have had no threat to their jobs during their lifetime. I have found myself out of work several times during the past 25 years or so, and nothing as been so limp-wristed and lame as unemployment benefits. This money was never a substitute for a job, and was always a means to cover a prime need, such as shelter or food — the lack of which would have been disastrous. The quotes Mary Theroux offered came from honest analysis of employment history, but we must remember that a straight comparison between two politically-defined constants which change depending upon who is in office are not necessarily immutable facts.
James Jensen | Jul 21, 2010 | Reply
You cannot compare the crash and depression of ’29 to now, as far as unemployment benefits are concerned. We had an agrarian society for a large number of people. And those who are ‘independent contractors’ or who own their own business are ineligible for benefits (of which I am one and suffering for it). We are in deep do-do and anyone who tries to sugar-coat the facts is ignorant (esp. professors who never had to work in the private sector and anyone from GS that has taken trillions of taxpayer money). MHO
Jim | Jul 21, 2010 | Reply
Does anyone care to notice the difference between this “recession” and every one before WW2? Simply put, we used to have a strong industrial sector, which we sent over to China during the nineties and oughts.
This means that the portion going to the working class is going instead to other economies, from which we import their products. Because of THAT, there’s no longer a bounceback of employment when we buy stuff. The idea of Employment as a lagging indicator is the economist’s effort to hide the fact that our lower classes (from which our economies used to recover) no longer is allowed to participate in our economy.
We got no more bubbles. We’ve finally figured out how to turn “trickle-down” into stay-away – at least in the USA. And this never-ending recession is one of its products
Godozo | Jul 21, 2010 | Reply
Interesting piece
I will take issue with one point.
Republicans oppose the extension because it will increase the deficit, slow the decline in unemployment, and slow the economic recovery.
Since when did Republicans care about the deficit? 8 Years of Reagan and 8 Years of Bush (6 of those with a Republican controlled congress) have shown that to be absolutely untrue.
Republicans pay lip service to the idea of a smaller state, but when in power, simply expand their favorite areas.
Redmond | Jul 22, 2010 | Reply
The truth of the matter is that very few in Congress have the vaguest clue about economics. Most subscribe to the snake-oil remedy prescribed by the witch doctor Keynes and marketed by the school system and every major media outlet.
It is more likely that the fools in Congress think that fiscal stimulus in the form of extended unemployment benefits will speed economic recovery. Of course none of them examine Bastiat’s “that which is unseen”, like where does the money come from?
To think that any politician, Democrat or Republican (except Ron Paul), is willing to self-inflict political damage for ideology or principle is an outright fantasy.
Barney | Jul 22, 2010 | Reply
Unemployment compensation in Florida is $275.00 a week which works out to $6.875 an hour. If I could find a job even at minimum wage I would be getting a .375 cents an hour raise, which over a forty hour week is half a tank of gas and at this point that would be a wind fall.
Also unemployment compensation is treated as taxable income but not (as it isn’t) earned income, hence no earned income tax credit. I learned that this year as I had to write a check to the IRS for my taxes.
Richard | Jul 22, 2010 | Reply
I will speak from personal and professional experience in job search, training and the inappropriately named Unemployment Insurance (UI) programs. (It isn’t insurance.) Outside of periods of genuine economic hardship, for most people the number of weeks of UI is a reflection of their ethics. Persons who have a strong work ethic tend to remain on benefits for shorter periods than the less dedicated. Many lose a sense of urgency when they know they can rely upon 26 weeks of UI benefits to cushion the burden of lost wages. I find it very interesting to note how many people claim they are unable to find suitable work until the last few weeks before their benefits are exhausted.
Also, many people off-the-books while drawing UI. With electronic benefits transfers, investigation and enforcement has become very weak to non-existent. I remember working with some people who arranged to be “laid-off” at the beginning of hunting season. A few did the same so they could work on their shrimping boats, making the equivalent of $60-100K/yr. during the short season, all while drawing UI benefits. When UI benefits are extended, as Congress did just this morning, they continue this off-the-books work. The UI just gives them a better cushion. They can earn less than they would with full-time employment but the UI compensates for some or all of the difference in wages. Plus they have more free time for leisure. For many, this pattern remains true no matter what state of the economy. You can doubt me, but that will not change my 25+ years of professional experience in this field.
Matthew | Jul 22, 2010 | Reply
How many unemployed miss the 4.2% unemployment , thriving economy, and record stock markets with small businesses booming from coast to coast that we had under Bush , up until the Democrats took over the houses in 2007? We also had a terrible economy under Clinton until the Republicans replaced the Democrats and ran both houses. Any of you unemployed see a pattern here?
http://technologiez.net/2010/07/22/unemployment-benefits-in-america/
anom | Jul 23, 2010 | Reply
It was the Second World War that got us out of the Depression, not any thing FDR did. The USA went on a War Footing, which stimulated the economy as never before or after. Army Forts/Navy Bases/Army Air Force post, all had to be updated to take in the massive amount of men and thus the equipment. Which meant putting people to work to build the new housing, the news Ships, the new airplanes. New Cars-Tanks- rifles, uniforms, Boots. So carpenters-welders-cooks- more food to be grown from the farmers, which put more workers in the fields. The Car Companies went to make tanks, half tracks,turned the former car plants into making airplanes. Which meant more workers needed to build these. FDR policies didn’t go a thing. As for your use of Wikipedia web site that any one can go to and change the FACTS, please. Lets go old fashion here and use HISTORY BOOKS about that time. Talk with your parents IF they are from that time frame or grandparents as I am certain they are old enough to have served in the Second World War. OR older family members. They will tell you FDR had nothing to do with the US getting out of the Depression. It was the War. Not sure what cave you have been living in, Hope you and Bin Laden were telling each other stores while there. Still to say FDR had a thing to do with it, As for the Republicans NOT wanting to pass the extension of the extension of the extension of the extended extension of the first extended unemployment money, it goes to show the Stimulus plan has failed. IF it was working then we would not need to have this 4th or 5th or 6th extension unemployment bill. One thing you are all over looking. The Dems kept adding other spending bills to the unemployment bill which the Rep voted down. The Senate Republican sent bill after bill to their Dem counter points that would be paid for under the Obama Pay As You Go law HE Sign. Rep’s kept saying send them a stand alone bill and they would vote for it with the use of the unspent stimulus funds. BUT did that happen. NOOOOOO they voted to have it added to the money our great great grand children will be pay off.
OHIO | Jul 23, 2010 | Reply
Hello? There are no friggin’ jobs out there. Nobody is hiring. At least here in Portland... there may be a few lazy people on UI, but most of us have been applying for any job we can find, and it turns out that 50 other over-qualified people have applied for the same damn position.
Oh, and by the way: I and every other worker paid into the UI fund for years. This is insurance, and we paid for it.
Bub | Jul 25, 2010 | Reply
It amazes me that every economist in the world writes articles like this pinning the economic contraction on government policy! The fact that there is Resource Depletion across the board on a broad range of natural resources necessary to fuel growth isn’t even a passing afterthought! Why is that?
Ken | Jul 27, 2010 | Reply