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Is Congress subsidizing slackers?

Congress has acted, after a cruel delay, to renew the extension of unemployment benefits. Those who are unemployed through no fault of their own will be eligible to collect benefits for as long as 99 weeks. This is an awfully long time, and it raises the question: Is Congress subsidizing slackers? To put it in a slightly less provocative way, do the beefed-up benefits encourage people not to work?

In theory, yes. In reality, in a recession this severe, probably not very much.

A bit of background: During normal times, unemployment insurance usually lasts for 26 weeks of joblessness. During downturns, Congress generally steps in to provide extra weeks of benefits beyond what states offer. During this particularly painful recession, workers have been able to collect benefits for an unprecedented 99 weeks -- nearly two years.

That's an long time, and it is a fair question whether these extended benefits contribute to unemployment. Here are the reasons for my answer that the supposed "moral hazard" is not a big problem in the current, dreary environment.

First, unemployment benefits in the United States are not terribly generous. As the congressional Joint Economic Committee recently noted, the average benefit -- about $300 weekly -- amounts to just three-quarters of the poverty threshold for a family of four.

Second, the jobs simply aren't there for people to take. There are five job-seekers for every available opening. Those tempted to slack off on the employment search because benefits are available for longer might not have found a job in any event -- and any job they spurned would have likely been snapped up by someone else.

As Harvard economist Lawrence Katz told the Joint Economic Committee earlier this year, the "most compelling research suggests only modest impacts of (unemployment insurance) extensions on the search effort and duration of unemployment" of jobless workers.

When layoffs tend to be permanent, as in the current recession, rather than temporary, as in the past, the risk of workers gaming the system is reduced: The unemployed can't simply hang out and collect checks expecting they'll eventually be called back.

A recent study from the Federal Reserve Bank of San Francisco examined unemployment duration during this recession for three different groups: those who lost jobs; those who left jobs voluntarily; and those who are new to the job search. Only the first of these are eligible to collect unemployment. The study found that the length of times unemployed grew slightly in the early part of the recession and then rose sharply just as the duration of unemployment benefits was extended.

Aha! Proof that more generous benefits cause indolence? Hardly. The involuntary job losers, those eligible for benefits, experienced a similar increase in time spent unemployed to that of job-leavers and new entrants. The differential between the two groups was a scant 1.6 weeks. Without the extended benefits, the study calculated, the unemployment rate at the end of 2009 would have been four-tenths of a percentage point lower. Not a negligible impact, but not a huge one either.

Economist Keith Hennessey, an adviser to President George W. Bush, looked at the issue from a different perspective. He assumed that the longer period for collecting benefits would result in increased unemployment -- contributing somewhere between 0.5 and 1 percentage points to the unemployment rate -- and considered whether the trade-off was worthwhile.

At the lower effect, with unemployment at 9.5 percent, he calculated that "eight people who would like a job but cannot find one are getting more generous (unemployment) benefits for each person who is getting those same benefits and choosing not to take a new job."

At an 8-to-1 ratio, extending unemployment is good policy, Hennessey said. And what if the more generous benefits contribute a full percentage point to the unemployment rate? Then the ratio of out-of-luck worker to loafer drops to 3.5-to-1. "That is a tougher call, but I would still say yes," Hennessey concluded.

Bottom line: With unemployment this high, and long-term unemployment at a record level, extending benefits is the sensible, humane thing to do. The risk of underwriting loafing is far less than the necessity of offering a safety net to those who would otherwise be without one.

By Ruth Marcus  | August 12, 2010; 2:37 PM ET
Categories:  Marcus  | Tags:  Ruth Marcus  
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Comments

Of course they do. Haven't you ever had to deal with government bureaucrats.

Posted by: flyover22 | August 12, 2010 5:48 PM | Report abuse

Extending benefits is sensible. What isn't is the irrational spending of the Obama Administration.

Democrats have been running Congress for nearly four years, and President Obama has been at the White House for 18 months, so it's not too soon to ask: How's that working out? The Budget shows the economy is growing deeper in debt with rising deficits and spending is greater than ever. Double digit unemployment, the wars continue and the government is responding to the economy with destructive assaults on business , unimagined government regulation and socialistic takeovers as the Obama Administration's only ambition is to turn away from the free-market economy to embrace the misery of socialism.

Posted by: 2012frank | August 12, 2010 7:11 PM | Report abuse

Ruth, why don't you try it? Have WAPO fire you and apply for unemployment.. chances are pretty good that no other news organization can afford, or wants, to hire you. Let us know how it feels after 99 weeks!

Posted by: Hazmat77 | August 12, 2010 7:21 PM | Report abuse

Ruth, you presume that States jump when Congress says jump. You ought to get out more. There are more important constituencies ...

Texas sues feds over offshore drilling ban
By SARAH PORTLOCK
The Associated Press
Wednesday, August 11, 2010; 8:32 PM

Posted by: gannon_dick | August 12, 2010 8:39 PM | Report abuse

There is a very cynical, mean streak in some conservatives that makes them believe that the general public are just a bunch of lazy people trying to steal from them. That they are poor because they don't work and that they should work all the hours of the day and night to eek out a living. That is the one single meme they believe. I think they are projecting their selfishness onto the working poor. What bunch of hooey! Newt Gingrich and his ilk lack empathy and ethics. Just ask his wives.

Posted by: sandnsmith | August 12, 2010 9:04 PM | Report abuse

Ahh, Sandnsmith,

I've actually witnessed this firsthand and I can say without a doubt, never underestimate the laziness of your average American.

I lived in a state where they were bringing in legal workers from Caribbean islands to work at the Hotel because the people in town did not want to lose their welfare benefits and get a job. These people would travel a thousand miles from their homeland to get a job, my lazy neighbors wouldn't travel down the street to take the same job.

Gaming the system is part of the American work ethic these days. If you don't believe it, watch anybody on the days that they are "telecommuting". They are more apt to be surfing the net and watching Judge Judy than actually doing meaningful work. And what about Flex Hours? Flex Hours are another way to game the system. Work 6am to 2pm...sure. From 6am to 8am, their down at breakfast or reading the paper. Compressed work hours so you can have Friday off. Gimmee a break.

So what makes you believe the average American isn't milking the system any way they can?

Posted by: d-35 | August 12, 2010 10:21 PM | Report abuse

But of course the slackers were made right here by the D.C. Bunch. They caused the collapse of our country by giving made up money to the very people that caused the problems in the first place. And lets not forget the real culprits Freddie and Fannie. The government housing company that gave billions in loans that they knew could never be paid back. And as well as giving other countries our money. That Just made the people of the good old U.S.A. slaves to the world.Yes we will work for them as well? Good job Barry Soetoro or AKA Barrack what ever your real name is.

Posted by: annieandpauldonovan | August 12, 2010 11:54 PM | Report abuse

I don't know about you, But I'm still waiting for the hope part of the change. I'm beginning to really miss Bush. I voted for this guy Obama and regretted voting early. I wanted to change my vote one day after the deed was done.TOO late for change for me, But I wondered how many of (me) there were? This guy is my worst mistake I ever made in life and wish I could take it back. Sorry to the world for my one vote gone wrong. Wish I never voted for Barry Soetoro AKA Barrack. Question why would anyone change there name from Barry Soetoro to Barrack Hussein Obama if they did not convert to Muslim faith?? Just a thought.

Posted by: annieandpauldonovan | August 13, 2010 12:24 AM | Report abuse

In the mean time, Germany just announced its best quarterly growth since reunification, new figures show the economic recovery gathering pace in France and Spain, and the European stock markets are jumping. The US remains in the Obama doldrums, shifting funds from the productive to the unproductive, catering to the bloated unions, and threatening tax increases on those alone likely to provide private jobs for the unemployed.

Posted by: suegbic1 | August 13, 2010 5:16 AM | Report abuse

Europe doesn't have the Repubs to say no to everything. What ideas do the Repubs have ? Not a one. What have they done for America in the last 40 years that have made it a better place ? Nothing. They now want to dismantle Social Security and Medicare. How can a sane person identify with the Repub party ?

Posted by: Falmouth1 | August 13, 2010 6:12 AM | Report abuse

It is widely believed that many people hold off from taking jobs that pay less than their unemployment benefits - that is, until the benefits are about to run out. Then, all of a sudden, they're willing to consider $10 an hour, and hope for something better later on.

I also know of a few people who do not intend to work again, and are merely collecting unemployment as a bridge until they are 62 and can collect Social Security.

Posted by: vinyl1 | August 13, 2010 7:55 AM | Report abuse

flyover22, it's you again.

I'm a government bureaucrat and so is your favorite senator.

You're an idiot which is why you end up on the Right side of every issue, the side notorious for being wrong.

How can you still want to be a rightist after 8 years of George W. Bush? Don't answer. The question was rhetorical.

Posted by: TylerHealey | August 13, 2010 10:25 AM | Report abuse

Ruth Marcus writing about economics and fiscal policy is like Paris Hilton discussing nuclear physics.

Where does the money come from Ruth? Is it that river of dollars that flows by Washington you can just dip into and take what you need? - or are their trade-offs to be considered?

Ruth points out that unemployment benefits are "not terribly generous". That seems terribly unfair. Shouldn't all of the unemployed be put on the federal government payroll at a living wage and with full benefits?

Why limit it to 99 weeks? Why not extend it until the person decides to go back to work? The unemployed might want to write novels or paint great works of art - who are we to deny them the opportunity!

Besides, those people who work and pay taxes are really a nasty bunch who have far too much wealth. It is only right that our wise federal government seizes their assets and properly redistributes the wealth.

Posted by: pilsener | August 13, 2010 10:32 AM | Report abuse

Just goes to show that statistics can be used to prove anything. We all know, even if we don't want to admit it, that there are many, many people gaming the system. (check out the stats on the huge number of new fishing licenses in LA after the oil spill!) I would posit that there is a vast underground economy financed by unemployment benefits and other government largesse that enables enterprising people to work under the table whenever and at whatever rate they please...or not. Call it trickle down corruption and the government has nothing but itself to blame. Hell will really break out when the honest folks finally get put out of business or just plain sick and tired. As ye sow, so shall ye reap, Congress.

Posted by: Cynic007 | August 13, 2010 11:55 AM | Report abuse

Everyone feels for those unemployed. But just a few observations, every company Ive worked for through a reccession let the least productive go first!! Least productive, slackers. Really why would you let your most vauable employees off first. But it does happen. The first thing you do after you get your first check is figure out if there is a job out there for you. In this economy probly not. Then you see if you can supplement your income with cash somehow, so you can remain on unemployment and work part time. You soon give up on that and start watching soaps and voting democratic. Im in FL and our economy sucks at 10% unemployed. But real people come by my house and ask if they can trim my trees, mow my lawn, handi-work or house cleaning. These people will survive and prosper. The ones watching soaps will be democrats forever.
Now the obama defenders insist this is all Bush's fault and they are entitled to their delusion, but thinking people know that when obama said he was 'focused on jobs like a laser', he was not. He saved the auto unions and the seiu when he should have let them reorganize and ignored the rest of us. There is much he could have done last year to avert this but did not, cut taxes for business and individuals, fund R&D, give business some incentive to go after profits, big profits, jobs comes from profits, not taxes and gov. regulation. But he did not. He let the economy slide, and focused on Healthcare and hundreds of new taxes to pay for it. He is just wrong, he is the reason we have high unemployment, he is inexperienced, and driven by socialist ideals. Thankfully he is a failure as a prez and will be four and out!

Posted by: JonGalt | August 13, 2010 12:10 PM | Report abuse

How about putting those billions of dollars into job creation by small and medium businesses instead of creating and sustaining a new underclass of government-dependent, non-productive members of society.

Many countries in the E.U. are ruing their lavish, decades-long support of those who produce nothing.

Posted by: spamsux1 | August 13, 2010 1:31 PM | Report abuse

Cruel delay by Congress? You effectively plant the seed in the very first sentence but fail to explain to your readership that the majority party did have the necessary votes to pass the legislation. This is not professional journalism. D+

Posted by: rowca | August 13, 2010 3:51 PM | Report abuse

Sandnsmith said: "There is a very cynical, mean streak in some conservatives that makes them believe that the general public are just a bunch of lazy people trying to steal from them."


Why do liberals lie so much?

Posted by: groovercg | August 13, 2010 6:20 PM | Report abuse

I believe there should be a safety net for the unemployed that gives them some income to tide them over until they can find another job. Nothing wrong with 6 months of unemployment especially when it's an insurance program that you pay into while you're working. But when unemployment "insurance" stretches out to almost two and half years that's too much. Sure unemployment insurance isn't overly generous but when you're in an economy like this one and your job prospects in your origninal field are minimal and you have a choice of working an unskilled job for 7 or 8 dollars an hour or sitting at home watching TV all day and collecting 7 or 8 dollars an hour of unemployment, what do you think is going to happen? It's human nature. Couple that with the American public's disdain for working manual labor type jobs that illegal immigrants now take and it's no wonder people are more than willing to stay on unemployment in perpetuum. That and the fact that a lot of the unemployed refuse to leave the depressed area they live in to go find a job in another city or even another state. From the Democratic party's perspecive extending unemployment out forever is a great thing for the party. They get a whole new group of people that have been sucked into the government dependecy culture who'll probably vote Democrat, the party that gave them the "free" goodies, for the rest of their lives. Not good for the future of this country but good for the Democrats. Great trade off.

Posted by: RobT1 | August 17, 2010 8:58 AM | Report abuse

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