The Glade 4.0

Unemployment insurance is one of the fastest ways to increase demand and create or maintain jobs.

19 Yet she became more and more promiscuous as she recalled the days of her youth, when she was a prostitute in Egypt. 20 There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.

Just about everyone I know has worked a thankless, poor paying job at some time in their lives and I'd sure as hell do it again if it was the only job I could find. I was actually starting to look for such jobs when I finally hit the jack pot with my current job as a park ranger.

The problem isn't that there aren't people willing to do these jobs, it's that welfare and unemployment are far easier and really don't pay worse and can even be better. Why work a hard job if you can get money sitting around the house?

Our welfare system is horribly broken. It encourages laziness instead of pushing people into continuing to look for jobs. Not everyone is happy with a welfare check, but millions of americans are.

Unemployment is another issue, but it encourages people to not worry about saving. Everyone should have enough savings to survive for awhile, but almost no one does (six months is the figure I've heard most).

I'd love to see the governments welfare system be turned into something similar to my church's, but that will never happen. It basically stipulates that those pulling from the welfare system help in some way, be it helping in the processing plants, helping drive people around, whatever. Of course, someone would throw a fit about having people work for their free stuff, and it would never happen.

You know, because I am sure every person who is currently collecting their 1200 dollars a month of unemployment (At the very best) is sitting there riding high on the hog and loving life. I'm sure they are all just too lazy to go out and get a job that can support their families. I'm sure that the unemployment insurance is just a big ol' disincentive for these people to go out and look for a job.

Or something.

Unemployment insurance is one of the fastest ways to increase demand and create or maintain jobs. When folks who will spend money (on food, gas to hit the pavement to look for work, etc) have money to spend - guess what? They spend it. Every dollar spent is another person's income. So, when you extend unemployment benefits you get a hell of a lot of bang for your buck economically.

The current debate over extending and increasing federal unemployment benefits encapsulates the disagreement between the Democrats in power in Washington and their Republican opponents. What the consequences will be of raising unemployment benefits in today's depressed economy is at issue.

The most obvious argument against extending or raising unemployment benefits is that it will make being unemployed either more attractive or less unattractive, and thereby lead to higher unemployment. Empirical research supports this view.

The Democratic retort is that the economy today is so different from the past that we have to suspend our traditional understanding of economics. With five job seekers for every job opening, the unemployed are desperate for work and increasing unemployment benefits will have very little if any disincentive effect. This view hinges on a total change in employee behavior from "normal" times to the current period of "the Great Recession."

On the face of it, the idea that higher unemployment benefits won't lead to more unemployment doesn't make much sense. Imagine what the unemployment rate would look like if unemployment benefits were universally $150,000 per year. My guess is we'd have a heck of a lot more unemployment. Common sense and personal experience indicate higher unemployment benefits will make unemployment less unattractive and thereby increase unemployment even in the Great Recession. As the chart nearby clearly shows, since the 1970s there's been a close correlation between increased unemployment benefits and an increase in the unemployment rate. Those who argue that things are different today don't have the data to back up their claims.
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The Democratic argument also ignores the impact of unemployment benefits on employer costs. Employers don't usually hire people to assuage their consciences. They hire people to make after-tax profits. And if workers require more pay because of higher unemployment benefits, employers will hire fewer employees. Whether increased unemployment benefits incentivize workers to work less or disincentivize employers from hiring more workers, the effect will be the same—higher unemployment.

The second point made by the Obama administration is that unemployment benefits are a great way to stimulate demand. Increased unemployment benefits operate quickly and the recipients spend what they get, which makes these stimulus funds the best bang for the buck.

Here again the facts are in dispute. Studies have shown that previous stimulus spending—much of which was also targeted for the poor and unemployed—was to a large extent saved and not spent. But I'm not going to rest my case on the obvious failure of Washington's prior stimulus packages. Based upon the above logic (as described in the January 2009 white paper co-authored by White House economists Christina Romer and Jared Bernstein) the administration forecast that the unemployment rate would be a little above 7.3% in the third quarter of this year. That isn't going to happen.

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Associated Press
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The flaw in their logic is that when it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy," or as my former colleague Milton Friedman repeated time and again, "there ain't no such thing as a free lunch." The government doesn't create resources. It redistributes them. For everyone who is given something there is someone who has that something taken away.

While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.

To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.

Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.

Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics.

No one opposes unemployment benefits as a transition aid for people to get back on their feet and find a new job. Unemployment benefits are a safeguard for individuals down on their luck. But to argue that unemployment benefits actually reduce unemployment is disingenuous at best, and could induce our government to enact policies that have the effect of destroying our nation's production base from whence all benefits ultimately flow.

Any government program that would reduce unemployment has to make working more attractive for both employer and employee. Since late 2007 the federal government has spent somewhere around $3.6 trillion to stimulate the economy. That is a lot of money.

My suggestion would have been to take all $3.6 trillion and declare a federal tax holiday for 18 months. No income tax, no corporate profits tax, no capital gains tax, no estate tax, no payroll tax (FICA) either employee or employer, no Medicare or Medicaid taxes, no federal excise taxes, no tariffs, no federal taxes at all, which would have reduced federal revenues by $2.4 trillion annually. Can you imagine where employment would be today? How does a 2.5% unemployment rate sound?

I've worked a thankless, poor paying-job too. I don't consider myself beneath those. But there is a difference between a thankless, poor-paying job (like say making minimum wage working in a movie theater or a janitorial job somewhere) and one that involves incredibly hard labor. When you get home from the former you've still got energy left to do other things. When you work a 10-12 hour shift on a farm picking crops in 100 degree heat you pretty much just pass out the second you get home.

Unemployment insurance is one of the fastest ways to increase demand and create or maintain jobs. When folks who will spend money (on food, gas to hit the pavement to look for work, etc) have money to spend - guess what? They spend it. Every dollar spent is another person's income. So, when you extend unemployment benefits you get a hell of a lot of bang for your buck economically.

Working in the farm aint that bad, in fact I hope to one day own one when I retire. I did a lot of fruit picking and wine work when I was on Uni breaks, and apart from the sun burns (Cause I'm such a vampire) I got more tonned and fit.

I'd just like to clear it up that it's not the 1900s where everything had to be done by hand and horses. There are machines and tractors which gets driven along with you so you don't have to carry more than 5kg at a time...

While short term unemployment benifits are good to help someone out when they hit a rough patch. The idea of an on-going one with out an attempt to push people back out in the work force is just silly.

Over here, when you're on benifits. As long as you are fit to work, you are required to go to 3 interviews for jobs a week, and the person that interviews you have to submit a report to the unemployment office of why they didnt want to hire you. A company could also apply with the unemployment office for people, who then get benifits in the form of tax cuts.

Failure to comply with this requirements would result in the reducing if not stopping of unemployment benifits for the person. Of course this is why a lot of women are now turning to having children instead, but thats another problem =P

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