Unemployment and unemployment benefits

Date posted: January 6, 2011

Congress will likely extend again the period for receiving unemployment benefits. Supporters say this is needed to help those survive the tough economy. However, some critics say that, while compassionate, the extension also causes more unemployment. N.C. State University economist Mike Walden weighs in.

“This is a very controversial issue. Obviously, none of us wants to see folks who are unemployed have to cut back on essentials, and you are not going to get rich on getting unemployment compensation. And so I think many people out of the charity of their hearts say this is exactly what we need to do — to extend unemployment compensation — which is right now at 99 weeks. If the new proposal is passed it will go another 26 weeks. So I want to put all that out right up front.

“But there are some who say, ‘Look, there is a cost for that, and it may be manifested in a slightly higher unemployment rate.’ And the notion is that if you are getting assistance, maybe you won’t be quite as motivated to look for work. And of course it’s not everyone, but some people, maybe, you will get a job offer and say, ‘No, I think I will turn that one down and wait for something else.’

“So researchers — economic researchers — have tried to see if this effect does in fact exist. And we have a new study fresh off the presses from the Federal Reserve Bank in San Francisco that indicates, yes, there is some of that. Again, not for everyone, but some people if they are getting unemployment compensation will take a little longer perhaps to look for work and find work.

“Now how much is it? Well it’s a small amount. In fact, researchers have found that the extension that we’ve had in unemployment benefits over the last couple of years maybe accounts for less than half a percentage point increase in the unemployment rate. So the impact is there, but it is very small.”

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