Do Unemployment Benefts “Boost” the Economy?

In a recent Florida TV interview President Obama said:
[Unemployment benefits are] probably the biggest boost that we can give an economy because those folks are most likely to spend the money with businesses, and that gives them customers.”
“Them” being WalMart and other economy stores that sell mostly Chinese goods.
Perhaps the President has forgotten that his Administration has already broken all previous unemployment benefit payment records.  More people are collecting benefits, for longer periods than ever before.

If paying Unemployment benefits were the biggest boost government could give an economy we would be in the midst of a powerful recovery.  Instead, as the chart below indicates, this is an anemic post recession recovery.  In the 1980s the maximum unemployment benefit period was 52 weeks.  This time the maximum has been increased to 99 weeks.

5.2 million people were collecting unemployment benefits in February, 2009 when the Obama stimulus was enacted.  Since then the number has been as high as 6.5 million.  Last week 4.2 million people were collecting benefits.  To put those numbers in perspective the 2007 average was 2.6 million.
Obviously, unemployment benefits aid people who might otherwise become destitute.  However they come with a cost.  Government can not create prosperity by taxing and borrowing from the productive private sector to to divert resources to people who are not productive.

It’s easy for politicians to claim an economic “boost” because the benefit side of the equation is visible and tabulated by the Dept. of Labor.  The cost side, investments not made, businesses not started or expanded, jobs not created, is invisible and not tabulated by government.

2 Comments so far

  1. Help the 99ers on December 15th, 2010

    Congress is not extending a 99-week limit by an additional 56 weeks.

    Every state in the nation provides up to 26 weeks of unemployment insurance.

    The Emergency Unemployment Compensation (EUC) program, a Federal program, has provided four “tiers” of additional benefits (PDF link). Today, the EUC program provides up to 34, 47 or 53 weeks of benefits, based on your state’s unemployment rate.

    In addition, “the basic Extended Benefits (EB) program provides up to 13 additional weeks of benefits when a State is experiencing high unemployment. Some States have also enacted a voluntary program to pay up to 7 additional weeks (20 weeks maximum) of Extended Benefits during periods of extremely high unemployment.” (source)

    This chart shows the maximum total number of weeks available: some states have a maximum of 60 weeks. Ten states have a 73-week limit. Five have an 86-week limit, and half of the US, 25 states, have a 99-week limit.

    The tax cut bill provides funding for the EUC and EB programs for an additional 13 months. Without that funding, the limit reverts to 26 weeks. It does not, however, provide for additional tiers of benefits beyond the 99-week maximum.

    The Tax Foundation’s Tax Policy Blog provides another look at how the tiers work, both now and under the proposed bill.

    There are a number of other issues in your article that should be addressed, but clearing up this one misconception will do for now.

  2. Help the 99ers on December 17th, 2010

    “Government can not create prosperity by taxing and borrowing from the productive private sector to to divert resources to people who are not productive.”

    That’s a strawman argument. The purpose of unemployment insurance is not to create prosperity. It’s to act as automatic stabilizer for people who have lost their jobs and for economy as a whole:

    “The UI program, by partially compensating for lost earnings, helps to break the negative cycle of increased unemployment leading to reduced consumption, which leads to a further reduction in economic activity.” (PDF link)