Extending Unemployment Benefits: Good Intentions, Bad Results

In his September 8 address to Congress, President Obama asked Congress once again to extend unemployment benefits, allowing workers to continue receiving benefits for up to almost two years. His request may be at odds with his newly proposed chairman of his Council of Economic Advisers, Alan Krueger.

During Mr. Krueger’s career as a Princeton economics professor, he wrote about the effects of unemployment insurance on the unemployed. He, along with numerous mainstream economists, wrote that unemployment insurance increases the time that workers remain unemployed. More generous benefits lead to longer periods of unemployment. Thus, a bill aimed at helping the unemployed may actually have the opposite effect.

Many economic analyses have estimated that unemployment insurance has significantly increased the unemployment rate. For example, one recent publication from the Federal Reserve Bank of Chicago, conservatively estimated “[t]he extension of unemployment insurance benefits during the recent economic downturn can account for approximately 1 percentage point of the increase in the unemployment rate.”

Adding another 4% to the estimated 2012 deficit, the President’s requested extension would cost around $45 billion. And what about the human cost? Is it right to delay so many workers’ reemployment? Is it right to artificially inflate unemployment? As with so many government programs, good intentions too often lead to bad results. In this case, those results can be measured in fewer jobs and in less personal dignity.

Christina Martin is Director of the Asset Ownership Project at Cascade Policy Institute, Oregon’s free market public policy research organization.