Taking Work Personally: How Individual Accounts Reward Personal Responsibility

Recently, I had a long conversation with an owner of a bakery near Medford, Oregon. He told me of the problems his company faced due to the disincentives inherent in Oregon’s unemployment insurance system. Two years ago, in the middle of the recession, this entrepreneur offered a job to a man who promptly responded that he would not be able to start work for another month. Why? Because his unemployment benefits did not run out until then.

This example is one of the more troubling stories I’ve heard about the problems created by unemployment insurance. Most are less dramatic. A friend of mine only applied for highly competitive jobs she knew she had little chance of getting. She really preferred to stay on benefits. She was expecting her child to be born soon, and it didn’t make sense to start a new job, particularly since her husband was gainfully employed.

Peer reviewed research shows that people receiving unemployment benefits commonly take longer to find a job. Unemployed workers who receive benefits take more than twice the time to find a job than those who do not. The instances of recipients finding a job increase strikingly just before UI benefits are exhausted. That doesn’t mean individuals who use unemployment benefits are dishonest, lazy, or bad. It does mean that incentives and logic play roles in their job searches. A new job is not only work, but it is full of risks and uncertainty. In some cases, a new job may pay less than unemployment benefits.

Unemployment benefits come with certain requirements precisely because of these incentive issues. Workers must actively search for work and accept appropriate full-time employment. However, requirements are frequently ignored or misunderstood. A U.S. Department of Labor report showed overpayments in unemployment benefits across the nation amount to almost $19 billion in waste. Beating the national average of 11%, Oregon overpaid an estimated $392 million over the last three years―about 12.2% of all state unemployment benefits paid during that period, according to the Labor Department. About one third of overpayments involved workers receiving benefits when ineligible because they were not available for work or because they failed their work search requirements.

The Labor Department’s report only examined the improper payments within state programs, which usually last up to 26 weeks. These figures do not include federal unemployment benefit extensions that currently allow many workers to claim up to 99 weeks (almost two years) of benefits.

So what’s the solution?

Chile’s unemployment insurance savings accounts have cut back on the disincentives that slow the job search for many who receive unemployment benefits. Chile’s workers and employers pay a portion of wages into Unemployment Insurance Savings Accounts. Each worker has his or her own account. When a worker becomes unemployed for any reason (even if it is voluntary), he or she may draw 30-50% of the previous wage for up to five months from the personal unemployment account. Workers who are laid off with small account balances receive help from a more traditional unemployment insurance safety net. At the end of their careers, workers may keep any balance in their unemployment accounts for use in retirement.

Chile’s experience demonstrates that these accounts offer an improved safety net that also improves some of the disincentives within the U.S. system. The personal accounts system motivates workers to return to work faster so they can have more money upon retirement. Chile’s system also broadens the pool of eligible recipients, since workers own their personal accounts. That means workers who cannot accept full-time employment (like a working mother or student) and workers who quit their jobs for personal or professional reasons (who are not covered under our system) would have some limited coverage under Chile’s system. This system may not solve all overpayment problems, but it would prevent a significant portion of overpayments, since ultimately workers are first paid from their own accounts.

One recent state-specific study (commissioned by Cascade Policy Institute) by economists Stéphane Pallage and Christian Zimmerman showed that switching to a system similar to Chile’s unemployment accounts system would benefit 97% of Oregonians. Even those who are most likely to be unemployed or most likely to have empty personal accounts would benefit from the switch. According to the economic model used, such a system would decrease the unemployment component of payroll taxes while improving outcomes for nearly everyone.

Oregon’s unemployment insurance system is rife with waste because it promotes longer unemployment and has inordinately high overpayment rates. Unemployment accounts would be a huge step in the right direction, improving incentives and rewarding hard work and personal responsibility while still maintaining the safety net that most Americans have grown accustomed to.

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

  • Rupert in Springfield

    Unemployment insurance is the biggest joke around. We all know its true, most people in ones experience tend to stay on it as long as possible and really only look for work seriously in the last few weeks before benefits run out. It’s essentially a rip off of the productive.

    However that’s not the point of the program. The purpose of unemployment insurance, as with many programs, is to foster a sense of entitlement in the individual. “I paid into this so now I am justified into getting my due”. An entitlement society fosters demand for more entitlement which helps grow government.

    One need only look to the mass urban camping movements, otherwise known as “occupied” to see this. These people call themselves the 99%. If they do truly constituent the bottom 99% of the population, then roughly half of them pay no federal income tax at all. Yet somehow they feel entitled to something from everyone else because in their minds a bank got something.

    The logical absurdity of this position illustrates how corrupting entitlement culture truly is. If what the occupiers said was absolutely true, that banks got ill gotten gains from the government, the logical position is to demand the situation be rectified, not conclude you are entitled to steal as well. Yet the occupiers have concluded precisely that, that they are entitled to rip off everyone else because someone else ripped off everyone else.

    If you are concerned about the current bankrupting of our country, then you are concerned about entitlements. Lavish unemployment insurance benefits are a part of that equation. The other part of that equation is the middle class addiction to these and other benefits, feeling that they are somehow owed money by society. A softer version of the occupiers looter logic, banks stole so I get to steal, but one we should be mindful is on the increase.

    Chili’s solution is a good one in that it seems to link behavior with reward rather than the corrupting approach we take here, you are owed this because you have a pulse. Most countries around the world seem to be waking up to this basic reality. If you convince people that because they exist, everyone in society owes them something, pretty soon you wont have a society left. Sadly our president remains stuck in the past thinking an economy of envy is a viable model. 

    • 3H

      Chili’s solution is a good one…
      Extend their Happy Hour to 8 p.m. on Mondays?

      • Rupert in Springfield

        I would say a general extension of happy hour across the board would be a good idea. Especially in light of the governments decision to drop regulation of it earlier this year.

        • 3H


          • Rupert in Springfield

            Yep, they even regulate happy hour. Have a great weekend!

  • Ladywriter

    Here’s the deal folks. I lost my job as an unpaid intern at the Oregonian. I majored in journalism at U of O and not a single prof told me that the industry was dying on the vine. I majored in it to make a real difference. I want to change the world and make it a better place by reporting the truth about so many things. Unfortunately, it seems like I will never get the chance. So, what am I supposed to do?
    I must turn to the unemloyment monies so as to keep alive. There is nothing wrong with this. What else can I do? Work at a Starbucks? I don’t think so, as I have a college degree.

    • Really?

      Use employment and look feverishly for a job.  But if none found in your field after 18 – 24 months, you need to move on and find some kind of a job.  Otherwise, you will eventually hold no value to any employer.  Find out what is marketable and take some classes so that you can get to work as soon as possible.  

    • None

      Dear Ladywriter,

      The problem is that you want to “report the truth.” If you want to report lies, then you will have a steady source of income at Fox “News”, KXL, and The Wall Street Journal. 

      They’ll even let you post on Oregon Catalyst!

  • valley person

    People are unemployed because there are not enough jobs at high enough pay because we are coming out of the worst recession since the 1930s, which followed 8 years of stagnant wages.

    When will conservatives learn to stop blaming the unemployed for being unemployed? Why don’t you blame corporate America, which ships jobs overseas and lays Americans off? 

    • Really?

      I like to call it the new age depression.  

  • Really?

    I have heard many similar stories of people who could have been working but chose not to because they didn’t want to for various reasons.  That is living off of the government unfairly and is an unfortunate waste of tax payers dollars.  

    However, all of the greed of corporate america is despicable and so is the actions of Congress that have put us in this awful economic position. It sickens me.  

  • just doing the math

    I just love these articles that highlight a FEW examples, and then from
    those few examples, draw conclusions that everyone on unemployment
    is living high on the hog. I have heard and read far more numerous stories 
    of individuals and families who have lost jobs and are losing their homes
    due to corporate America’s off shoring of good paying jobs.

    Here is an interesting article. I am only suggesting reading this because
    the OC article above seems to imply that the majority of the unemployed
    on state insurance are hanging out and enjoying the American dream.
    It really is not about the very few bad apples that do not wish to work, it
    is about the persistant lack of JOBS.


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