Subsidizing Unemployment

Coincidently or not, President Obama signed a further extension to unemployment benefits on April 15, Tax Day — a move that will cost more tax money. The bill extended some individuals’ benefits to a whopping total of 99 weeks (quick math: That’s nearly two years).

Though initial state unemployment benefits are funded through taxes on employers, federal extensions like this one are funded by the U.S. Treasury (read more details here). Translation: taxpayers are on the hook for subsidizing more weeks of unemployment checks for millions of Americans.

Though earlier this year, the idea of “paygo,” paying for new spending as it is voted on, was agreed on, The New York Times notes the following

… the Senate resolved a stubborn (emphasis added) impasse, deciding the $18 billion cost of the measure could be added to the deficit.

Since when is insisting on actually paying your bills considered “stubborn”? Since politicians decided they could win votes by making more individuals dependent on government subsidization.

And all of this has been done despite the earlier view of one of Obama’s chief economic advisors that unemployment insurance is an actual cause of long-term unemployment. In writing on the causes of long-term unemployment, that advisor, Lawrence Summers, observed the following:

To fully understand unemployment, we must consider the causes of recorded long-term unemployment. Empirical evidence shows that two causes are welfare payments and unemployment insurance.

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 that reservation wage, causing an unemployed person to remain unemployed longer.

Perhaps government leaders are just failing to heed the economics axiom that if you want more of an activity, subsidize it. If you want more unemployment, subsidize it.

However, a more cynical observer might suggest that politicians’ persistent desire to further increase the subsidization of unemployment may actually be a way to exacerbate the problem — giving them a further excuse to grow government dependency and their power.

2 Responses to Subsidizing Unemployment

  1. […] I’ve noted before, in some states federally-sponsored unemployment can now include up to 99 weeks. One point they […]

  2. […] Policies ranging from the bank bailouts to the car bailouts to the seemingly never-ending supply of unemployment benefits to Americans all highlight that Obama believes, in reality, that the government should shield […]

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