Tuesday, November 25, 2008

Unemployment Benefits Cause Unemployment

David Henderson writes at Forbes today about the effects of extending unemployment benefits on the unemployment rate.

When the government subsidizes an activity, it gives people an incentive to do more of it. That's true also of unemployment benefits. To receive unemployment benefits, someone must be unemployed. The unemployment benefit system, in short, pays people to be unemployed.

By signing the law on Friday that will extend the length of time unemployed workers can receive unemployment benefits and by signing a similar law last July, President Bush has made our unemployment rate higher than otherwise. The legislation that Bush signed will provide seven additional weeks of payments to people who have exhausted their benefits or will exhaust them soon. Those in states where the unemployment rate is above 6% would be entitled to an additional 13 weeks above the 26 weeks of regular benefits.
I have alluded to this effect before, but Henderson lays this out pretty well with lots of data and links to academic journal papers. He doesn't mostly rely on pontification like yours truly.

What annoys me about this practice of extended unemployment benefits, is that many use a high unemployment rate to justify further interventionist policies.


Note - I am out of town this week, so forgive me if the posting is less than inspiring.

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