Do Unemployment Benefits Make Us Lazy?

Would you work really hard to look for a job if you knew you’d be able to collect nearly two year’s worth of unemployment checks instead? Some Republican legislators are betting the answer is no, which is one of the reasons they blocked a bill that would extend these benefits.

The Senate failed to pass a bill Thursday that would allocate $33 billion for an extension of unemployment benefits and aid to keep budget-strapped state governments afloat. The bill was filibustered by all 40 Senate Republicans and one lone Democrat for the third time in two weeks.

According to the Labor Department, more than 1.2 million Americans will lose their unemployment benefits this week as a result of the bill’s defeat, and many more will lose their benefits in the coming weeks. President Obama has stated that he will continue to push for the bill to pass, but legislators admit that this prospect seems unlikely.

Throughout the debates so far, critics of the bill have essentially focused on two big issues. The first is that this package will add billions more to our country’s already spiraling budget deficit. Democrats have repeatedly countered this point by reducing the size of the bill from a broader bill that totaled $112 billion to the $33 billion bill turned down yesterday, and arguing that about two-thirds of the cost, with the exception of the unemployment benefits, will be paid for by taxes and other means.

According to the Los Angeles Times, “Democrats say all the provisions in the bill are offset by spending cuts and tax increases except the jobless benefits, which Congress traditionally has approved as an emergency without looking for a way to pay for them.”
Ultimately though, the refusal to approve the unemployment extension this time may hinge on a more philosophical question. Do unemployment benefits cause more harm than good by discouraging out-of-work Americans from looking for jobs?

Sen. Jon Kyl (R-Ariz.), the minority whip, argued this point back in March, claiming that extending unemployment benefits may actually be a bad thing for the country’s workers “because people are being paid even though they’re not working.” This point was echoed more recently by Sen. John Linder (R-Ga.), who claims that unemployment benefits may encourage workers to stop looking for jobs and stay out of the workforce longer. “Even when businesses are willing to hire, nearly two years of unemployment benefits are too much of an allure for some,” he said.

On the other hand, notable economists like Paul Krugman, a Nobel Prize winner, have countered this point by arguing that while “really generous” benefits could reduce the incentive to look for work, that’s not the problem we face right now. “What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant,” he wrote in a New York Times column earlier this year. “That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much.”

As it turns out, the naysayers do have a fair amount of studies to support their point. The Heritage Foundation, a conservative research group, reported last year that for every 13 weeks unemployment benefits are extended, workers remain unemployed for an extra two weeks. Similarly, an analyst from JPMorgan pointed out that unemployment benefits have “almost certainly played a significant role in the record rise in the duration of unemployment.” Yet, according to some economists, that is precisely the point of unemployment benefits in the first place.

“One intention of the unemployment insurance program is to give people the chance to take the time to find the job that is actually a good match for them,” said Heidi Shierholz, a labor economist at the Economic Policy Institute, a nonpartisan think tank. Rather than a bad thing for our economy, Shierholz argues that this actually helps our country overall. “It’s best for the whole economy that people have a job which maximizes their skills. So some extension of job search time is actually an intentional and appropriate goal of the program.”

Even so, Shierholz believes that the effect unemployment benefits have on whether workers hunt actively for jobs is “overstated.” She echoes Krugman’s point that this ignores the larger reality that the economic downturn continues to ravage the labor market. “In a world where we have five unemployed workers looking for every one job posted, this notion that we have unemployed workers choosing not to look for a job is just ludicrous,” she said.

Ultimately though, Shierholz admits that this is an issue that is “hotly debated” and deservedly so, but now is not the right time to debate it. “This is something to think about when there are jobs out there, but given that there aren’t jobs out there, it’s really a moot point.”