Extending Federal Unemployment Insurance Subsidizes Unemployment

            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.