Unemployment Insurance: A Permanent Entitlement?

Seems to be becoming one.

The Washington Post recently touched off an intense argument amongst the Scragged editors.  The WaPo framed the question thus:

Millions of Americans have been forced to rely on unemployment payments for extended periods as the nation struggles through its longest period of high joblessness in a generation, and critics are taking aim, saying that the Depression-era program created as a temporary bridge for laid-off workers is turning into an expensive entitlement.

Unemployment payments total about $10 billion per month which adds a lot to the deficit.  Apologists say that there are no alternatives given that so many jobs have disappeared forever; critics say that unemployment payments discourage job seeking.

Sen. Jim Bunning notoriously held up a bill to extend unemployment benefits, saying that the government ought at least to figure out where the money would come from before spending so much more.  Sen. Jon Kyl made a more hard-hitting point:

"If anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work," Kyl said. "I am sure most of them would like work and probably have tried to seek it, but you can't argue it is a job enhancer."

In support of Sen. Kyl, statistics indicate that people look for jobs much more intensely as unemployment payments are about to run out than they do when they have a long time yet to run.  Lawrence H. Summers, the current White House economic adviser, wrote:

"The second way government assistance programs contribute to long-term unemployment is by providing an incentive, and the means, not to work. Each unemployed person has a 'reservation wage' - the minimum wage he or she insists on getting before accepting a job. Unemployment insurance and other social assistance programs increase [the] reservation wage, causing an unemployed person to remain unemployed longer."

On the other hand, there still seem to be about six unemployed people for each available job, so no matter how hard they try, a great many of them aren't going to be employed anytime soon.  What to do?

The Cause Celebre

The story of an unemployed father of four touched off even more heated discussion here at Scragged HQ:

He receives $1,200 a month in unemployment benefits, less than half the $3,000 a month he brought home from his job. Now he is often behind paying about $1,500 in rent, a car payment and other expenses. "I'm stealing from Peter to pay Paul," he said, adding: "There's the cable, the phone bill. I owe the bank overdraft fees and the insurance is lapsing a little bit. I can't take my kids shopping for school clothes because I don't have enough to do that."

He needs a phone and a car to look for a job, but some of our staff wondered why he had cable.  He could sell the car and get an older one which might reduce his payments even if he was underwater on the car, but financial advisers generally say that unless you drive a Ferrari the cheapest car for you is the one you already own.

But then he made a statement reflecting precisely the situation Lawrence H. Summers predicted:

"I can't take something that's minimum wage because I just won't be able to pay my bills," he said. "I'd have to work three jobs to pay the bills, and that doesn't make sense."

Why shouldn't he work two or three jobs, at least for a while?  Wouldn't a prospective employer prefer someone who worked really hard to meet his obligations to someone who just sat back and collected?

For good reason: if he took a minimum-wage job, he'd no longer be unemployed, so his unemployment benefits would stop.  He might easily end up receiving less cash from working than he gets from not working, and have less job-hunting free time to boot.

Making do is not totally impossible.  One of my friends found himself unemployed for some months.  He collected scrap aluminum and sold it.  He picked up empty cans at 10 cents each.  He removed aluminum cylinder heads from the engine of an abandoned boat.

His neighbors made it clear that they didn't like living next to a junk collector, but he persevered and paid his bills without collecting a cent from the government! It's possible to scratch out a living as the illegals do almost anywhere in the country, but most Americans simply aren't willing to work that hard or in an unseemly way.

Another friend spent 4 to 6 hours per day working the phones and the Internet, then he took the first job that opened up.  The government will get back what it paid him, but it'll take a while.

Increasing Expectations

Part of the problem is that government lied when it called the program "unemployment insurance."  As with Social Security, which courts have ruled is a welfare program instead of insurance, people feel entitled to collect because they feel they've paid into the program.  True unemployment insurance, like true health insurance or fire insurance, is a good idea: it protects you from the full harm of an unpredictable catastrophic event, by allowing you to spread the cost out over time and the risk across many, many people.

Unfortunately, as Sen. Bunning hammered home, our government dumps general tax (or, worse, borrowed) money into unemployment benefits that were never paid for by "insurance" premiums.  There's no longer a connection between the premiums paid and the benefits received.

So what do you think?  Is it false compassion to make it possible for people to stay idle longer and get out of the habit of working?  Or should we add to the welfare rolls and to the deficit by extending unemployment benefits essentially forever?

Will Offensicht is a staff writer for Scragged.com and an internationally published author by a different name.  Read other Scragged.com articles by Will Offensicht or other articles on Economics.
Reader Comments
"Unemployement insurance" doesn't exist. It's a complete misnomer.

The government doesn't provide insurance, it provides welfare. It doesn't have to mitigate risk, like a real insurance company, because it can keep taking money from taxpayers any time it wants.

If unemployment insurance was actually real insurance, how come states do not ONLY use payments to pay the beneficiaries? They don't. They use tax money and even federal subsidies occasionally.

I have no problem with unemployment insurance in theory so long as it was completely privatized. An employer could offer it to his employees in any term he wanted - 3 months, 25% normal pay, whatever. But the employer should be able to do that at HIS own choosing and from HIS own provider (Statefarm, Nationwide, etc).

Government regulation - in the name of 'the greater good' - is going to end up taken every spare dime we have left.
April 20, 2010 9:24 AM
Here is an idea. After receiving unemployment payments for three the recipient would be required to provide public service. Picking up highway trash, help with local construction projects, working at food pantries are just a few ideas. Each day of "work" missed would be deducted from the unemployment check.
April 20, 2010 10:32 AM
@solution: That's actually an excellent idea. Sounds like the Civilian Conservation Corps from the depression: http://en.wikipedia.org/wiki/Civilian_Conservation_Corps. I have no problem paying people to do productive work. It's much better than people sitting idle or paying them not to work. But it needs to be only a subsistence level wage -- people should have the option as a last resort if they can't find a job, but it shouldn't be an attractive or lucrative one.

I'm surprised this isn't being done already, what with the libs moaning over our "crumbling infrastructure."
April 20, 2010 10:57 AM
I also wanted to point out the lead sentence from the WaPo quote: "have been forced to rely on unemployment payments for extended periods"... The word choice is like nails on a chalkboard. "Forced to rely"? How are people "forced to rely" on them? Words like that and the thought underlying them show how ingrained this entitlement program has been become in our national consciousness.

This kind of thinking demonstrates how far we have changed from the days of yore where people saw work as their duty and had initiative and gumption to support themselves. Nowadays, it seems people are helpless unless jobs are handed to them. They can't seek out and create.

It's actually ironic the way people speak of jobs nowadays -- "we need to create jobs", "high joblessness", "millions of jobs lost" -- like jobs are some ephemeral thing that grows on trees.
April 20, 2010 11:08 AM
If unemployment compensation were less (much less) then the minimum wage the problem would almost certainly self resolve.
No, you couldn't live on it and it wouldn't pay all your bills but you wouldn't starve and that's what it was created for...
April 20, 2010 5:27 PM
Sen. Dunning's motivation is also subject to question, as he recanted his objections; such is the methodology of so many Republicans who are never serious about government spending, as witness the extravagance of the Bush yrs: Obama & this Congress learnt well from their predecessors..
April 20, 2010 6:57 PM
"On the other hand, there still seem to be about six unemployed people for each available job, so no matter how hard they try, a great many of them aren't going to be employed anytime soon"

This statement is false. People in general refuse to starve. As you pointed out later in your article it is possible to scavenge for items to sell, thats called starting a business. NPR has done a number of stories on people starting their own businesses, how many more would do so if it was that or starve?

I do not have sympathy for people who spend all of their money then complain when they can't pay their bills when they lose their job. If I lost my job today I could live for about four months without any income, with no governmental or familial assistance and without taking loans or using credit cards.

Its not because I am rich, i you looked at my house you'd think I was stretching to makes ends meet. I live under my means and save for raining day. That rainy day will come. I will be ready for it. Why should I provide support for those who are incapable of foresight?
April 20, 2010 9:01 PM


Well said. We are now living, as a nation, under the mentality that people have to have a 'safety net' in every part of their life.

Saving money, having foresight, being responsible, living within your means - all foreign concepts. The people that actually do those things are called workaholics, 'squares' or 'tools'. They're ridiculed for not enjoying their lives, and then - later after they accumulate wealth - for not caring about the poor.
April 21, 2010 7:05 AM
@jony.. i recently got a job that uses some of my antiquated talents, fixing vacuum tube electronics; tired of living on savings, and not having any reliable employment history, i decided this seemed most advantageous, and discovered my rekindled love of the circuits. notice i am eligible for any sort of $$, and dislike charity.
I think those on the dole stay that way, not because of unemployability but apathy, as my experience would imply...
April 21, 2010 9:22 PM

"Here is an idea. After receiving unemployment payments for three the recipient would be required to provide public service. Picking up highway trash, help with local construction projects, working at food pantries are just a few ideas. Each day of "work" missed would be deducted from the unemployment check."

That is possibly the worst idea ever. You're suggesting changing unemployment into a GOVERNMENT JOBS program--pay for work. If you think people feel entitled NOW, imagine what they'll say if they have to work for their dole money!

What needs to happen is a complete cancellation of all unemployment benefits. Period. Then a suspension of the minimum wage and employer payroll tax. Let the market decide the crybabies' future. They'll come around.

October 7, 2011 10:52 PM


I like what you have to say about unemployment but the present system could be tweaked a little. The people that lose their jobs should be given the opportunity to buy unemployment insurance out of their salaries, not the employer. They could opt for 1 month, 2 months, etc. of benefits and of course the expense of it would cause them to opt for a shorter time frame.

There are added economical benefits to this proposal. One employers would be more prone to hire people at slack times since they would then know that they would not be punished by the government for hiring people in a time where added employees was needed. I know plenty of people who will not hire people for this one reason alone. Two, these people would be better employees knowing that if they were laid off that their unemployment checks would not be forthcoming for a couple of years. And thirdly it is my opinion that the employees would have more self worth being employed. It is also my opinion that these employees would then understand our economic system better as they would then be part of the make it or lose that we have. When we get to this point unemployment would cease to be a problem except for the people that genuinely don't want to work and that would be their problem/solution.

October 8, 2011 10:40 AM
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