Musings on unemployment benefits

Patterico discusses how an increase in unemployment benefits reduces employment: it creates incentives for people to not work.

I’ve found that long periods of UI benefits also reduce incentives for employers to hire: they  pay part of unemployment benefits, and they are reluctant to risk paying for 99 weeks (or 73 weeks) of benefits if a new hire doesn’t work out or if there is not work for that person in a year’s time.  Many employres will kindly lay off a person, rather than fire him, in order to not tarnish their resumes; we create  a huge disincentive for that by extending unemployment insurance benefits.

Years ago, one of my friends got laid off and had very generous unemployment benefits.  She took classes, got her notary public’s license, volunteered on an almost full-time basis, and looked for jobs.  At any given time, she could explain to an employer what she had done for the past few months; many long-term unemployed people cannot do that.  Extending UI benefits can actually render people ineligible for work once they get an interview: few employers like hiring people who have sat around and have not continued to sharpen and update their skills.

If extensive unemployment actually created jobs, the economy would be going gangbusters right now.  If, as predicted by conservatives, unprecedented UI benefits disincentivise hiring and working, the labour force participation rate would be rather low right now.  Just saying.

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