It’s unfortunate that in recent times, I’ve been receiving more and more blog comments from people who are having a really tough time dealing with their finances in this job market. The truth is, we are facing some long drawn out periods where employment opportunities are scarce. There have also been a lot of stories in the media about how unemployment benefits are now expiring and drying up for a good number of former workers.
Should Unemployment Benefits Be Extended?
I can’t imagine how stressful it must be to lose your jobless benefits while you’re still unemployed, although the possible maximum of 99 weeks provided for such benefits (that’s close to 2 years) seem like quite a long spell. In certain parts of the country, even 2 years may not be enough to get a job these days — but this may be the point where you tell yourself it’s time to try your luck elsewhere. Personally, I would give myself up to a year to find a job locally, but beyond that point, I’d do my job search and cast my net as far and wide as possible to cover any geographical region. I’ve heard the arguments back and forth on the issue of extending jobless benefits, and it’s no surprise why it’s a touchy subject.
Here’s an article that gives some food for thought. I came across some comments here that were worth noting:
The problem with the system is that it gives people less incentive to immediately get a job. I was getting 70%-ish of what I was previously making. So doing the math, I am not going to take a job that does not pay me significantly more than my unemployment. It would not be worth it. If I were making $12 an hour on unemployment, why would I take a job that’s just $13 an hour? That’s only an extra dollar per hour for 8 hours of full work everyday.
Unemployment is INSURANCE not welfare. Every person on unemployment paid taxes on every paycheck while they were employed for the right to Unemployment INSURANCE in case they lose their job by no fault of their own. This is NOT WELFARE people, this is INSURANCE that these Americans paid into while they were working; it’s NOT THEIR FAULT the economy has not improved, and they should not have to lose their homes and cars, and eat top ramen with their children at the dinner table night after night, and now LOSE their benefits outright.
Certainly, these are some interesting points worthy of your reactions.
There are a lot of debates on this subject, and one such argument is made by this graphic from The Wall Street Journal that show some of the latest statistics on long term unemployment. Could the existence of jobless benefits prolong unemployment or cause higher unemployment rates?
Who’s Unemployed?
Long Term Unemployment Numbers
This is the kind of big picture take on the subject that we should also be investigating, even as we delve into the micro effects of such widespread government policies that are now hitting average workers.
Can You Get By Without Jobless Benefits?
I mentioned before that I had someone in my family who had a background in law but for the longest time could not find a job as a lawyer here (given that he relocated here from overseas just as the financial crisis and recession hit). The awesome thing was that he found himself taking jobs that were quite unrelated to his area of expertise. But no job was beneath him. For a period of time, he worked at a coffee shop as a barista, where turnover was high. He put in the hours until he eventually found a job more up his alley. He survived without relying on unemployment benefits.
Now I’m sure every place can be different and every situation is unique, but I can’t help but think that a lot of what’s going on out there doesn’t exactly merit 2 years’ worth of unemployment benefits.
So what do you think? In your mind, how long would it take you to get a job if you suddenly become unemployed at this point? If you were having trouble finding a new job, what steps would you take to get yourself back on track?
For more on unemployment matters, check out our articles:
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{ 22 comments… read them below or add one }
Of course unemployment benefits should be extended, if we can find money to fight wars and send money overseas we can certainly support unemployed Americans in a depression.
I’m happy to extend benefits until it’s a conclusive fact that we are on a healthy path to recovery.
I don’t think there’s any argument against having jobless benefits and extending them (at least from me). I guess the question here is: how long should the benefits be extended for? Should we go beyond two years? How long is too long? I’ve been on extended unemployment before and it was certainly a factor for me not to want to seek a job immediately; it encouraged me to take a break and wait a while before I did anything about it. In case you’re curious, this was during the dot com bust in 2000 or 2001.
It’s interesting that the two comments you quoted are both inaccurate.
Most states cap unemployment benefits at 50% of prior wages, with a relatively low cap. So, most likely the person who says they are getting 70% is incorrect. Unless he is comparing the gross amount of unemployment to his net paycheck, which is not a valid comparison, as he will eventually owe taxes on that unemployment (only the first $2400 is exempt from tax).
The second commenter is also wrong, as unemployment insurance is paid by the employer, not the employee. Even if you think that the money still comes out of the employee’s pocket (which is a reasonable interpretation), unemployment premiums are only paid on the first $10K of wages (the amount varies by state, but in most states it is around $10K).
Those premiums cover the first 26 weeks, but are not enough to cover the Federal extension. Those benefits are paid by other taxpayers, not by insurance premiums.
You can call unemployment “insurance” all you want, but real insurance is a closed loop where subscribers pay the actuarial cost to insure themselves against certain types of events. Payroll taxes don’t work like that, no matter what the government says. The money taken out of your paycheck today goes to pay for general spending (including benefit payments to other people) today, not into an account to be held for you tomorrow. If you don’t believe me, Google FDR’s private comments on the Social Security system.
That said, unemployment benefits keep people fed and housed while they look for work, and are much cheaper overall than, say, bailing out investment banks – which does nothing for regular people.
No – we should not just keep extending unemployment benefits. For one thing – the government can’t afford it. For another, there is little incentive for people to take a job that may pay them less than what they were making or to change industries.
That does not mean that we should just cut people off and let them starve. What I would propose is that after the “normal” unemployment benefits run out (I believe this is about 26 weeks), making people work for their benefit. With the state of the economy being what it is, most states have had to to make drastic cuts in their budgets and many non-profits are hurting for contributions. How about making people cut grass in parks or along the side of highways? How about making out-of-work construction workers help low-income elderly people retro-fit their homes so they can stay in them instead of going to a nursing home? How about making people volunteer in nursing homes or schools? Or for that matter, how about moving a pile of rocks from one side of a road to another, and then back again? Whatever kind of jobs we come up with – give people enough money to survive, but notmore – so they have incentive to go find something better. I would rather pay people to do something that to do nothing.
Investing for dummies:
Why can’t we bring the troops home right now, stop foreign aid, and stop unemployment benefits?
Financial Samurai:
I’m glad you’re happy to extend benefits, but I am not. So let’s make a deal and instead of raising my taxes or going into debt to finance these benefits, we’ll just ask kind-hearted people, like you, for donations of your money, seeing as you are so charitable.
Silicon Valley Blogger:
I think you raise a great point. For what arbitrary length do we extend benefits? I haven’t heard a good response to this question yet. It seems that we would have to extend them indefinitely as there will always be someone without a job.
To the poster from CNN:
If I’m not mistaken the insurance part is only covered for the first six months of unemployment. When a person moves to Emergency Unemployment Compensation, this is no longer the case.
My thoughts:
I’m am in the mindset that benefits should not be extended. People do not have a right to indefinitely keep their house, car, cable, cell phone, air conditioner, high-def TV, or game console. I do think the government has a responsibility to keep it’s people alive within reason, so I would not be opposed to a “3 hots and a cot” setup where people truly in need would get three hot meals everyday and a single cot to sleep on at night.
Many have, and will continue to say, that they lost their job through no fault of their own. I completely agree. But, if they never said any money for a rainy day, then that is their fault. And when they lost their job, if they keep their $100 phone and cable bill, or kept dining out at restaurants, or went on vacations, then that is their fault as well.
I’d also say that the rules for unemployment should be changed. I know of several cases of people close to me (including an uncle), turning down jobs in their career fields because there is not enough incentive. Unemployment should help people during hard times, not give them a reason not to work.
Regarding the quotes from CNN — yes, that was a sampling of what people are thinking at this time. I featured it to show a representation of the arguments being made for or against the issue of unemployment benefits. Granted, a lot of people have inaccurate facts in mind when they debate their points…
Thanks to those of you who explained some of the pertinent points here in more detail.
I personally don’t think that we should extend unemployment benefits beyond two years, for the reason you point out above about people being too complacent. The problem is that it encourages people to wait for the same job to come back to them, rather than reinventing themselves, learning new things, innovating, or otherwise moving on. During a deep recession, we’re supposed to face hardship, we’re supposed to pay some sort of price, and we’re supposed to learn something from it. I worry that coddling us with excessive benefits will encourage us to maintain the same habits that got us here in the first place (e.g. poor money management, heavy debt loads, profligate spending).
Isn’t the bigger question “Why do unemployment benefits exist in the first place?”
Every pay period, our government betters deduct a few bucks from our checks. The implicit message is, “Citizen, you’re too stupid to save for a rainy day. Given the financial prudence we’re famous for, let us do it instead.” Don’t take that money from me in the first place, and that eliminates the moral question of how long benefits should be extended for.
@Greg, as has been pointed out in these comments, employees do NOT pay for unemployment insurance, employers do. NOTHING is withheld from your check to pay for this insurance.
I think people should be cut off after 9-12 months. I know of too many cases where people are just living off unemployment, and not really looking for a job.
Maybe the standard term should be 6 months, and anything past that you have to pay back a %(over time) once you start a new job. I think something like this would separate the truly needy from the deadbeats.
I remember back in the Clinton administration, the President pointed out that unemployment benefits were a program designed for the manufacturing economy of 50 years ago, an anachronism. The benefits were designed to be a bridge to short term loss of employment – most workers expected to get their old jobs back when business ramped up.
Today, workers change jobs, get fired, and move careers all the time. I think that this system needs to be redesigned.
“@Greg, as has been pointed out in these comments, employees do NOT pay for unemployment insurance, employers do. NOTHING is withheld from your check to pay for this insurance.”
That’s actually not universally true. In some states, money IS withheld from wages, albeit a trivial amount of the whlole cost.
For example, Pennsylvania:
http://www.payroll-taxes.com/PayrollTaxes/00000314.htm
“Employee rate – 0.06% for 2009 (.08% for 2010) is withheld from gross wages. ”
The weird thing is that it’s an incredibly tiny amount. If you make $100,000 in gross wages, you’d have $80 withheld over the course of the year (it’s eight hundredths of a single percent). I’m not really sure what that point is …
I wasn’t aware of this until recently, as I’ve never lived in a state with such a system.
Unemployment benefits should be extended because the jobs are not there no matter how you look at it. Suddenly pulling the rug out from under people would hurt the economy because consumer spending would decline even more and more people would be thrown out of work, maybe some of the same people who complain about those on unemployment benefits!
Personally I think the solution is to make it harder to keep unemployment benefits unless you’re really honestly looking for work. If you’re getting unemployment for 2 years then I highly doubt most of those people have been actively seeking work that whole time. I bet a large amount of those people are using the unemployment checks as a semi-vacation. If you make it harder to keep unemployment by requiring more proof of job seeking and other requirements then you’ll keep people from milking the system so much. For the people who are honestly actively seeking work and simply can’t find it then I think retraining or a governemt works program is a better answer than just extending unemployment checks indefinitely. So if you are on unemployment for 1-2 years then cut off the checks and instead give them free tuition to the local community college or put them to work for the government at minimum wage doing whatever needs doing.
I’m opposed to giving away anything for free. I think anyone receiving an unemployment check or a welfare, as long as they are of sound mind and body, should be required to perform some work to receive the benefit, even if it is something as simple as cleaning up trash in a park. Many years ago unemployment benefits were considered a loan from the government and the beneficiaries had to pay the loan back. Somehow we’ve “progressed” from that mindset to the entitlement society.
I have to disagree with the comment that unemployment benefits are paid by the employer rather than worker. While technically that is correct, it is paid for with wages that are withheld from the worker.
Absolutely! The amount of money that people get to live on is pathetic; if you’re unfortunate enough not to be able to work why should you have no quality of life because of it.
I’m 59 yrs old and have worked for 28 yrs. This is the first time I have ever had to draw unemployment. I’m so glad it is there to help in this hard time. I was laid off from my job and I will tell you there is nothing out there for my age. I am thankful for those who voted for the extension. Why not help the people rather than Wall Street?
There are two questions lacking emphasis regarding apparent improvements in the economy (the last I’ve heard). First, when ever these corporations increase their profit and expand business, how much of the labor remain as full-time help rather than the ejected fodder of temporary services? Does the economy truly improve or is it merely a temporary increase for big corporate employers?
The second question is in regard to states with fire-at-will rights preserved for employers who do not want to pay out benefits that once again contribute to rich folk who fund and constitute PACs (proverbial “fat cats”) who cannot stand to lose a yacht or two. Please enlighten me about these issues somebody. When somebody is able to fire someone without adequate cause, how does this benefit anyone? Temporary services offer false assurance for those who don’t desire to draw unemployment and “earn” their keep.
If cuts are needed, then maybe companies should have incentive (with lower insurance and taxes) to hire full-time employees (who would like to earn a little too) who actually learn to do quality jobs. Humans don’t work like microwave ovens or fast food. Working folk keep losing for the special interests of the wealthy elite. That’s what has got us to these issues in the first place. Don’t use capitalism as an excuse. What about the capital desired by the poor that constitute the base for our nation’s greater wealth? It’s like kicking the legs out from under a table!
@Carl,
I like your idea about offering incentives to companies that are able to keep long term employees. Has the precedence been set for this particular situation?