Unemployment Benefit, Extended or Not?

A study by senior economist at the Federal Reserve Bank of Philadelphia Makoto Nakajima in 2010 found that the extended unemployment benefit accounted for an increase in the unemployment rate by 1.2 percentage points. A recent working paper of the Federal Reserve Bank of Atlanta by Lei Fang and Jun Nie also concluded that unemployment insurance extension is accounted for 0.5 percentage point of the unemployment rate in the 2008-2012 periods.

This makes sense since unemployed workers tend to be less picky in selecting jobs when they are no longer secured from receiving benefit from the government. Another reason is that they would increase their effort in searching for a job as said by Credit Suisse economist, Dana Saporta,“Some people who lost their benefits may increase their efforts to seek work if they were less-incentivized to do so while receiving federal assistance.”

It seems that this notion is hard to argue. Economists tend to be in favor of the benefit cut. Moreover, recent news and opinion also support this view (some are here, here, and here), that the benefit cut will increase likelihood jobless person from being employed and further discourage him or her to be more picky in searching job. In some extend, I agree with this view, especially when it comes to low level workers where they are able to do wide range of jobs that no need specific training and education. For this kind of worker, a benefit extension without selective criteria to get it is prone to discourage jobless people for accepting job offer immediately.

On the other hand, I think extension is still needed when the problem is not because jobless people are too picky in finding job or because they value paid-leisure more than hard work, rather because of lack of job offers as said by Jesse Rothstein, a professor at the University of California, Berkeley, “The problem we have right now is not a shortage of people who want jobs. The problem we have is a shortage of jobs and that doesn’t get better if you make people more desperate.”

Mr. Obama point it out clearly when he responded to criticism that jobless benefit discourage unemployed people from looking a job,”Folks aren’t looking for a handout. They’re not looking for special treatment. There are a lot of people who are sending out resumes every single day. But the job market is still tough in pockets around the country and people need support.”

The benefit extension, I think, is not for everyone and everywhere. Unemployment rate data for states released by Bureau of Labor Statistics shows that rates widely vary across states with the lowest South Dakota of 2.6 percent and the highest Rhode Island of 9.1. Michigan, home for our university, unfortunately is at number four from the bottom with 8.4 percent, higher than national average of 6.7 percent. Although it need to be supported with research, it is more likely that finding a job here in Michigan is harder than that in South Dakota. It could be because there are only few jobs available here than there. If this is the case, state is one of good candidates for criteria to determine the benefit extension.

Lastly, I would like to emphasize my point that we need criteria to determine whether or not a jobless person is eligible for a benefit extension. Establishment of such criteria would ensure the benefit will not discourage them from seriously looking for a job. Meanwhile it will also ensure that those who are struggling from searching jobs due to a job shortage to be patient enough in their efforts.