It has been
said that if one wants more of something, subsidize it. As studies have shown, extending federal unemployment
insurance benefits for additional months subsidizes, and therefore incentivizes,
unemployment.
Extending
unemployment benefits for several additional months reduces the incentive to
look for work seriously. Many people
receiving unemployment compensation turn down temporary or part-time work. They also hold out for higher-paying jobs
instead of accepting job offers for lower-paying employment. People on unemployment compensation
oftentimes do not start engaging in a serious job search until they are near
the end of the period during which they receive benefits.
In fact, it is not unusual for
people receiving unemployment compensation to make half-hearted attempts at
finding a job, or even phony ones, such as showing up at job interviews
inappropriately attired. Conversely, the
approach of the end of the period of receipt of unemployment benefits is an
incentive for people to accept the job offers they have received or to start
looking for work seriously.
Some people who receive
unemployment benefits have no intention to return to the labor force because
they do not need financially to work.
They stop their obligatory job searches immediately after their
unemployment compensation ceases. They
are then counted by the federal government as “unemployed,” which exaggerates
the unemployment statistics. After a
certain period, they are then counted as “discouraged” workers because they
have stopped looking for work and are removed from the statistical ranks of the
unemployed. Regardless, they are not
discouraged because of economic reasons, but were understandably enjoying the
unemployment compensation for which they had paid taxes as a kind of insurance premium.
The point is that government
interference in the free market creates economic distortions that cause
unintended consequences, like the time wasted by people and companies with
phony job searches, let alone the statistical distortions – which, in turn,
lead liberal politicians to call for more government help for the long-term
unemployed.
As has been occurring during the
Obama Administration, extending unemployment insurance benefits would have the
opposite effect: decreasing employment and reducing productivity, thereby
decreasing taxable revenue. The current
debate in Congress has centered on the demand of some conservative Republican
members of finding offsetting spending cuts to finance the extension of
unemployment benefits, but it is time to for Congress to question the efficacy
of federal unemployment insurance in the first place.
People can purchase supplemental
unemployment insurance, which is a prudent idea. It would be even better if the federal
government eliminated unemployment insurance taxes, got out of the unemployment
insurance business altogether and allowed the free market to provide whatever
level of protection people desire to purchase with the money freed up from not
having to pay unemployment taxes. Then,
if people opt not to take work, they would not be wasting taxpayer dollars, but
their own allotment. The increase in
employment would create more taxable revenue for the federal and state
governments and increase productivity, which would further stimulate the
economy, thereby generating even more taxable revenue.