Does collecting unemployment checks keep unemployed Americans from looking for full-time work?
Millions of Americans are waiting to see what Congress will soon decide as a temporary extension of the emergency federal unemployment benefits will expire at the end of February.
Currently, unemployed Americans in 21 states are eligible for assistance as long as 99 weeks. That’s nearly two years, and it’s the longest in U.S. history.
Most Democrats say struggling Americans need to keep collecting unemployment benefits so they can stay afloat and to keep consumer spending from completely tanking. Some Republicans think the unemployed are a bit too comfortable and more Americans will actively look for work if their benefits expire earlier.
But what if instead of limiting the length unemployment can be collected, the government cut back the actual amount given to the unemployed each week?
If you’re unemployed right now – you probably hate the idea – and I don’t blame you. As a matter of fact, both my wife and I have been in your position over the past three years, and that’s actually what gave me this idea.
The company I used to work for closed its doors in January of 2009 – right in the thick of the Great Recession – and I found myself collecting unemployment. It took me 9 months to get a part-time job and more than a year to get back to full-time employment.
My wife has been laid off because of cutbacks twice since 2010. Her first stint on unemployment only lasted a couple months. The second time it lasted six months (she very recently landed a new job).
There’s no doubt that it can take a pretty long time to find employment. Approximately 6-million Americans have been without a job for six months or longer. Depending on your specific skills, industry and education, it may be even harder to find work.
But do unemployment benefits keep people from trying their hardest to get a job? Are the unemployed in America too comfortable? My wife and I had a conversation that made me think about those questions.
The Catch-22 of Unemployment Benefits
We were sitting down and taking a good hard look at our financial situation when my wife exclaimed, “Really, I think we’re doing pretty well right now.”
What she meant was that were were able to pay our bills and provide for our family, which was great. However, we were also getting help from the government, so the truth is we weren’t doing so well even though our checking account was in good shape.
As someone who’s been through the stress of unemployment, I’m also willing to admit that it can be hard to stop accepting that weekly compensation.
The rules (at least in Wisconsin) are that while collecting benefits, you’re supposed to inquire about two job opportunities per week. When I started job hunting back in 2009, I would avoid applying for openings that would pay less than my former job, or for positions I felt were beneath my skills.
I thought that if I could ride out unemployment a little longer, the job of my dreams would fall into my lap. But that was before I went 9 months without an offer, and realized just how tough the competition was (and still is).
It was even more difficult for my wife to take on a new job. She’d been collecting partial unemployment insurance while picking up waitressing shifts in the evenings and watching our two young boys during the day.
Her return to work meant we’d start incurring childcare costs again. The new job came with a 40 minute commute, which meant more money being spent on gas.
I may look like a jerk for saying this – but maybe we actually were a bit too comfortable while collecting unemployment. Finding a new job should be a relief for the unemployed, but sometimes it forces you to make difficult decisions.
The Debate Over Unemployment
A recent article from the Atlanta Journal Constitution took a closer look at the unemployment debate – speaking with both sides of the political aisle as well as those who are currently unemployed.
U.S. Labor Secretary Hilda Solis recently told reporters the unemployed are anything but lazy and complacent.
“They are not freeloaders. They are hard-working people who spend all day every day filling out applications, sending out résumés and looking for work.”
However, Republican congressman Tom Graves of Georgia told the Atlanta Journal Constitution he believes many of the unemployed aren’t motivated enough to go back to work.
“It’s very clear, talking to employers, that it’s manipulating the marketplace and not allowing or incentivizing individuals to go back to work sooner.”
Believe it or not – even President Obama’s Council of Economic Advisers believes unemployment benefits could impede the recovery. It recently reported that…
“…unemployment compensation can potentially be a disincentive for some workers to search intensively or to accept an offer if they receive one.”
The reality is, both kinds of people exist. There are unemployed Americans who are working hard to find a new job and desperately need the help. There are also people who are milking the government for everything they can – and really why shouldn’t they, right?
Crunching the Numbers on Unemployment
The typical unemployment check is about 1/3 of a persons previous weekly wage (36%). The average check is $296 and the maximum you can collect depends on the state in which you live.
36% of your salary doesn’t seem like an exorbitant amount.
But remember, many unemployed Americans could be cutting out things like childcare and travel expenses – even going out to eat for lunch everyday. You may choose not to withhold taxes from your unemployment checks, and won’t have healthcare or 401k deductions taken out of that check either.
That can make your unemployment check seem like more than one-third of your old paycheck, because your take home pay is still pretty good.
There are studies by conservative economists that claim extending benefits increases the unemployment rate by 2%. On the other hand, liberal economists found unemployment is mostly caused be lack of demand and not supply reductions caused by the availability of unemployment insurance.
A Rutgers University study, which tracked 2,000 unemployed U.S. citizens from 2009 into 2011, found people who were not receiving unemployment compensation were more likely to find a new job in less than a year than those who were collecting benefits.
Then again – The Congressional Budget Office released a report indicating that even if benefits cause the unemployed to ignore job opportunities, they will quickly be filled by new workers entering the job market.
Basically – the jury is still out on how UI affects the unemployment rate.
A Different Approach?
So what I’m getting at is that we know it could potentially take some unemployed Americans a long time to find the kind of job they really need. But it certainly seems like having some more motivation to go back to work would help.
What if instead of limiting the length of time unemployment benefits could be received, the federal government chose to slightly reduce the amount that is paid out?
What if an unemployment check topped off at 25% of your old salary rather than 36%? What if the amount you received was reduced after a certain number of weeks instead of reducing the number of weeks benefits are available?
I’m not saying I completely believe this is the best solution, but I would love to hear what you think!
Are you or have you been on unemployment in the last few years? Do you think you were too comfortable? Do you think reducing the time or the amount a person can collect unemployment benefits would help or hurt the U.S. economy?
Leave a comment and let us know your opinion!
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Image credit: philcampbell
Image: winnond / FreeDigitalPhotos.net
+Kasey Steinbrinck writes regularly on personal finances and the U.S. economy for Check Advantage. The online printer is please to offer free shipping on personal checks. Check out their massive collection of Classic Checks, Cool Checks and more today!
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