Phoenix
10th July 2010, 01:17 AM
http://finance.yahoo.com/career-work/article/110013/debate-on-jobless-benefits
Long Recession Ignites Debate on Jobless Benefits
by Sara Murray
Thursday, July 8, 2010
http://us.news2.yimg.com/us.yimg.com/p/fi/18/49/60.gif
Management Recruiters of Sacramento, Calif., says it recently had a tough time filling six engineering positions at an Oregon manufacturer paying $60,000 a year -- and suspects long-term jobless benefits were part of the hitch.
"We called several engineers that were unemployed," says Karl Dinse, a managing partner at the recruiting firm. "They said, nah, you know, if it were paying $80,000 I'd think about it." Some candidates suggested he call them back when their benefits were scheduled to run out, he says.
Rick Jewell has a different take on extended jobless benefits: He didn't want to be on the dole, but had no alternative. He has been out of work since he lost his $12-an-hour job driving a forklift for a cosmetics company in Greenwood, Ind., in December 2008. He collected $315 a week in benefits until early June -- when Congress declined to renew the law that gave workers in Indiana and some other states up to 99 weeks of assistance.
"I am tired of sitting at home. I am tired of not being the breadwinner," says Mr. Jewell, who says he looks for work every day. He and his wife now rely on her $480 a week job as a distribution supervisor at the same cosmetics company.
In the long recession and the lackluster recovery, the government expanded unemployment payments more than at any time since the benefits were rolled out in the 1930s. And workers have gone jobless for longer than any time since official tallies began in 1967.
Politicians and economists are now in a fierce debate that could have big consequences for the jobless: Did more generous unemployment benefits prompt jobless workers to be pickier in their searches? Or was the program a prudent response to the worst recession in generations?
The debate remains pressing as Congress wrestles with whether to extend the expired benefit program. The House passed an extension renewal backed by President Barack Obama as part of a broader bill that died in the Senate, after skirmishes about the wisdom of enlarging the deficit. The House passed a scaled-down version last week, but the Senate won't revisit this issue until after its week-long recess.
Economists have argued for years about the extent to which government benefits prolong unemployment -- and possibly augment the overall jobless rate. Most believe that expanding benefits does discourage some unemployed people from looking for work or taking available jobs. But they disagree on how acute that effect is, particularly at a time when jobs are scarce.
"Given the current economic situation I doubt that effect is very large," says Harvard University economist Raj Chetty. "I think people will take whatever job they can get."
Economists on the right see a danger to prolonging benefits. "I don't think anybody's getting rich off of unemployment, and I'm not saying people are lazy," says Michael Tanner of the Cato Institute, a libertarian think tank in Washington, D.C. "The fact is, when you have a check coming in, even if it's a fairly low check, you're less motivated to either look for work or accept less optimal jobs."
http://l.yimg.com/a/p/fi/31/16/69.jpg
Note: Data as of June 2010; Source: Labor Dept.
The recent recession was unusual in almost every respect. Compared to other post-World War II recessions, it was deeper, longer, and put more people out of work. A year after the economy began growing, unemployment is still a very high 9.5%. Nearly half the jobless -- 6.8 million total -- have been out of work for more than six months, and 4.3 million of those have been without work for more than a year. The typical unemployed person has been out of the job market for a median of 25.5 weeks.
The government response was also unusual, and not just in the big bank bailout. In normal times, the unemployed are offered up to 26 weeks of benefits, largely financed by a tax on employers. In recessions, state and federal governments often jointly finance up to an additional 20 weeks in hard-hit states. In this recession, Congress added up to another 53 weeks of federally funded benefits; in the deep crisis of the 1980s, the maximum total never exceeded 55 weeks.
The unemployment compensation system, created in 1935, was designed to tide workers over during periods of temporary unemployment. Benefits are based on a worker's prior wages; the average is $310 a week. Only workers who have lost a job through no fault of their own are eligible. Those who quit or who are new to the work force don't qualify. They must reapply weekly or biweekly, depending on the state, and indicate that they are looking for work.
In the 1980s, only half of all unemployed received benefits. In the first quarter of 2010, 69% of the unemployed did. That's partly because the benefits lasted so much longer, economists say. It's also because Washington gave states incentives to extend benefits to workers looking for part-time jobs and those who enrolled in training programs.
A variety of studies suggest that adding another 53 weeks of benefits increases the time the average worker is jobless by between 4.2 and 10.6 weeks. The higher estimates are based on studies conducted decades ago when layoffs were often temporary; in this recession, many unemployed workers will never return to their old positions.
"People do get jobs in a substantial number," when their benefits run out, Cato's Mr. Tanner says, citing a study from the 1980s recession. The study, by economists Stepan Jurajda, of Charles University in Prague, and Frederick Tannery of the University of Pittsburgh, discovered 29% of workers who lost jobs in Pittsburgh between 1980 and 1985 found positions as soon as their benefits ended. Mr. Tanner expects that will also be true this time around, though the fraction could be smaller given the high rate of unemployment.
In a recession such as this one -- with five unemployed workers for every job opening -- it's not clear whether the old academic findings apply.
In his scholarly past, Lawrence Summers, now Mr. Obama's economic guru, wrote in 1993 that "government assistance programs contribute to long-term unemployment ... by providing an incentive, and the means, not to work." When an April Wall Street Journal editorial described his position, Mr. Summers fired back in a letter to the editor: "In the wake of the worst economic crisis in eight decades ... there can be no doubt that the overwhelming cause of unemployment is economic distress, not the existence of unemployment insurance."
http://l.yimg.com/a/p/fi/31/16/72.jpg
A 2000 study by David Card of the University of California at Berkeley and Phillip Levine of Wellesley College looked at a one-time 13-week extension of jobless benefits in New Jersey. It found that in normal times, such an extension added about one week to the duration of unemployment. If that study's formula was applied to the current recession, the typical spell of unemployment would be about 4.2 weeks longer than normal.
In times when jobs are scarce, Mr. Levine argues that any disincentive to work is minimal. A recent Federal Reserve Bank of San Francisco study arrived at the same conclusion: Those who were eligible for unemployment benefits were out of work just 1.6 weeks longer than those who weren't receiving benefits.
Most workers, economists say, wouldn't risk holding out for an ideal job in this economy. But individual attitudes and circumstances vary widely.
Paul A. Johnson's $65,000-a-year job evaporated when the digital entertainment company for which he worked folded in May of 2009. The 31-year-old went on unemployment benefits, collecting $475 a week.
A few offers surfaced, but Mr. Johnson says the pay wasn't tempting enough to give up his government check. "The jobs I was being offered were less than I was making when I got out of college," he says. "I didn't see a point."
After two months of unemployment, he took a $72,000-a-year job with an advertising agency, but quit after a week. Mr. Johnson says he became depressed as he realized he was miserable in his career. No longer eligible for benefits, Mr. Johnson moved in with his mother in East Hampton, N.Y. He says he plans to launch his own company selling baked goods online.
Partnership Staffing Inc. in Richmond, Va., which supplies temporary workers to warehouse and manufacturing companies at wages between $8 and $14 an hour, occasionally finds workers who refuse offers, says Bill Auchmoody, chief executive. "We only get about 2% or 3% who use the excuse to us, blatantly, face-to-face, 'You know, that's not enough money, I make more money on unemployment,' " he says.
When benefits run out, some workers take jobs but still struggle. After Gale Satchell's benefits of $232-a-week ran out in March, the Pittsburgh resident found a part-time position at a local Dollar Tree Inc. store. But she works just eight hours a week for a weekly check of $58. Ms. Satchell, 43, gets $200 a month in food stamps and recently borrowed money from a relative to pay her gas and electric bill.
"Before I even applied to unemployment, I was applying for jobs," says Ms. Satchell, who lost her customer service position in 2007. She's applied for work as a cashier, a housekeeper and a telemarketer, among other gigs. At a recent interview, some 50 people turned out for one position, she says.
While curtailing benefits could prod some jobless workers to take unappealing jobs, benefits supporters say there would be other negative effects. The expanded benefits may have underpinned consumer demand at a time when it was weak. Unemployed workers tend to spend most or all of their unemployment checks quickly, economists say. In one analysis this year, the Congressional Budget Office said that each dollar spent on extending benefits would increase economic output by $0.70 to $1.90.
http://l.yimg.com/a/p/fi/31/16/73.jpg
Some economists argue that benefits can help the jobless perceive themselves as still part of the labor force. If benefits end, these workers may be more likely to apply for disability or similar benefits.
"It's a really worrisome situation," says Lawrence Katz, a Harvard University economist. "That could be very fiscally expensive and there are large human costs."
Cindy Paoletti, 58, understands those costs. Laid off from her job as a bookkeeper in J.P. Morgan Chase & Co.'s operations center in December 2007, she used a severance package to pay bills, and then began collecting $330 a week in unemployment benefits. She has exhausted her 99 weeks of benefits, and still can't find a job. Employers "just don't want to hire anybody in our age group," she says.
For now, she's budgeting the $2,000 left over from her late husband's life insurance policy.
"Unemployment benefits do not pay the bills," she says. "The people that I know that have been unemployed are searching every single day."
Write to Sara Murray at sara.murray@wsj.com
Long Recession Ignites Debate on Jobless Benefits
by Sara Murray
Thursday, July 8, 2010
http://us.news2.yimg.com/us.yimg.com/p/fi/18/49/60.gif
Management Recruiters of Sacramento, Calif., says it recently had a tough time filling six engineering positions at an Oregon manufacturer paying $60,000 a year -- and suspects long-term jobless benefits were part of the hitch.
"We called several engineers that were unemployed," says Karl Dinse, a managing partner at the recruiting firm. "They said, nah, you know, if it were paying $80,000 I'd think about it." Some candidates suggested he call them back when their benefits were scheduled to run out, he says.
Rick Jewell has a different take on extended jobless benefits: He didn't want to be on the dole, but had no alternative. He has been out of work since he lost his $12-an-hour job driving a forklift for a cosmetics company in Greenwood, Ind., in December 2008. He collected $315 a week in benefits until early June -- when Congress declined to renew the law that gave workers in Indiana and some other states up to 99 weeks of assistance.
"I am tired of sitting at home. I am tired of not being the breadwinner," says Mr. Jewell, who says he looks for work every day. He and his wife now rely on her $480 a week job as a distribution supervisor at the same cosmetics company.
In the long recession and the lackluster recovery, the government expanded unemployment payments more than at any time since the benefits were rolled out in the 1930s. And workers have gone jobless for longer than any time since official tallies began in 1967.
Politicians and economists are now in a fierce debate that could have big consequences for the jobless: Did more generous unemployment benefits prompt jobless workers to be pickier in their searches? Or was the program a prudent response to the worst recession in generations?
The debate remains pressing as Congress wrestles with whether to extend the expired benefit program. The House passed an extension renewal backed by President Barack Obama as part of a broader bill that died in the Senate, after skirmishes about the wisdom of enlarging the deficit. The House passed a scaled-down version last week, but the Senate won't revisit this issue until after its week-long recess.
Economists have argued for years about the extent to which government benefits prolong unemployment -- and possibly augment the overall jobless rate. Most believe that expanding benefits does discourage some unemployed people from looking for work or taking available jobs. But they disagree on how acute that effect is, particularly at a time when jobs are scarce.
"Given the current economic situation I doubt that effect is very large," says Harvard University economist Raj Chetty. "I think people will take whatever job they can get."
Economists on the right see a danger to prolonging benefits. "I don't think anybody's getting rich off of unemployment, and I'm not saying people are lazy," says Michael Tanner of the Cato Institute, a libertarian think tank in Washington, D.C. "The fact is, when you have a check coming in, even if it's a fairly low check, you're less motivated to either look for work or accept less optimal jobs."
http://l.yimg.com/a/p/fi/31/16/69.jpg
Note: Data as of June 2010; Source: Labor Dept.
The recent recession was unusual in almost every respect. Compared to other post-World War II recessions, it was deeper, longer, and put more people out of work. A year after the economy began growing, unemployment is still a very high 9.5%. Nearly half the jobless -- 6.8 million total -- have been out of work for more than six months, and 4.3 million of those have been without work for more than a year. The typical unemployed person has been out of the job market for a median of 25.5 weeks.
The government response was also unusual, and not just in the big bank bailout. In normal times, the unemployed are offered up to 26 weeks of benefits, largely financed by a tax on employers. In recessions, state and federal governments often jointly finance up to an additional 20 weeks in hard-hit states. In this recession, Congress added up to another 53 weeks of federally funded benefits; in the deep crisis of the 1980s, the maximum total never exceeded 55 weeks.
The unemployment compensation system, created in 1935, was designed to tide workers over during periods of temporary unemployment. Benefits are based on a worker's prior wages; the average is $310 a week. Only workers who have lost a job through no fault of their own are eligible. Those who quit or who are new to the work force don't qualify. They must reapply weekly or biweekly, depending on the state, and indicate that they are looking for work.
In the 1980s, only half of all unemployed received benefits. In the first quarter of 2010, 69% of the unemployed did. That's partly because the benefits lasted so much longer, economists say. It's also because Washington gave states incentives to extend benefits to workers looking for part-time jobs and those who enrolled in training programs.
A variety of studies suggest that adding another 53 weeks of benefits increases the time the average worker is jobless by between 4.2 and 10.6 weeks. The higher estimates are based on studies conducted decades ago when layoffs were often temporary; in this recession, many unemployed workers will never return to their old positions.
"People do get jobs in a substantial number," when their benefits run out, Cato's Mr. Tanner says, citing a study from the 1980s recession. The study, by economists Stepan Jurajda, of Charles University in Prague, and Frederick Tannery of the University of Pittsburgh, discovered 29% of workers who lost jobs in Pittsburgh between 1980 and 1985 found positions as soon as their benefits ended. Mr. Tanner expects that will also be true this time around, though the fraction could be smaller given the high rate of unemployment.
In a recession such as this one -- with five unemployed workers for every job opening -- it's not clear whether the old academic findings apply.
In his scholarly past, Lawrence Summers, now Mr. Obama's economic guru, wrote in 1993 that "government assistance programs contribute to long-term unemployment ... by providing an incentive, and the means, not to work." When an April Wall Street Journal editorial described his position, Mr. Summers fired back in a letter to the editor: "In the wake of the worst economic crisis in eight decades ... there can be no doubt that the overwhelming cause of unemployment is economic distress, not the existence of unemployment insurance."
http://l.yimg.com/a/p/fi/31/16/72.jpg
A 2000 study by David Card of the University of California at Berkeley and Phillip Levine of Wellesley College looked at a one-time 13-week extension of jobless benefits in New Jersey. It found that in normal times, such an extension added about one week to the duration of unemployment. If that study's formula was applied to the current recession, the typical spell of unemployment would be about 4.2 weeks longer than normal.
In times when jobs are scarce, Mr. Levine argues that any disincentive to work is minimal. A recent Federal Reserve Bank of San Francisco study arrived at the same conclusion: Those who were eligible for unemployment benefits were out of work just 1.6 weeks longer than those who weren't receiving benefits.
Most workers, economists say, wouldn't risk holding out for an ideal job in this economy. But individual attitudes and circumstances vary widely.
Paul A. Johnson's $65,000-a-year job evaporated when the digital entertainment company for which he worked folded in May of 2009. The 31-year-old went on unemployment benefits, collecting $475 a week.
A few offers surfaced, but Mr. Johnson says the pay wasn't tempting enough to give up his government check. "The jobs I was being offered were less than I was making when I got out of college," he says. "I didn't see a point."
After two months of unemployment, he took a $72,000-a-year job with an advertising agency, but quit after a week. Mr. Johnson says he became depressed as he realized he was miserable in his career. No longer eligible for benefits, Mr. Johnson moved in with his mother in East Hampton, N.Y. He says he plans to launch his own company selling baked goods online.
Partnership Staffing Inc. in Richmond, Va., which supplies temporary workers to warehouse and manufacturing companies at wages between $8 and $14 an hour, occasionally finds workers who refuse offers, says Bill Auchmoody, chief executive. "We only get about 2% or 3% who use the excuse to us, blatantly, face-to-face, 'You know, that's not enough money, I make more money on unemployment,' " he says.
When benefits run out, some workers take jobs but still struggle. After Gale Satchell's benefits of $232-a-week ran out in March, the Pittsburgh resident found a part-time position at a local Dollar Tree Inc. store. But she works just eight hours a week for a weekly check of $58. Ms. Satchell, 43, gets $200 a month in food stamps and recently borrowed money from a relative to pay her gas and electric bill.
"Before I even applied to unemployment, I was applying for jobs," says Ms. Satchell, who lost her customer service position in 2007. She's applied for work as a cashier, a housekeeper and a telemarketer, among other gigs. At a recent interview, some 50 people turned out for one position, she says.
While curtailing benefits could prod some jobless workers to take unappealing jobs, benefits supporters say there would be other negative effects. The expanded benefits may have underpinned consumer demand at a time when it was weak. Unemployed workers tend to spend most or all of their unemployment checks quickly, economists say. In one analysis this year, the Congressional Budget Office said that each dollar spent on extending benefits would increase economic output by $0.70 to $1.90.
http://l.yimg.com/a/p/fi/31/16/73.jpg
Some economists argue that benefits can help the jobless perceive themselves as still part of the labor force. If benefits end, these workers may be more likely to apply for disability or similar benefits.
"It's a really worrisome situation," says Lawrence Katz, a Harvard University economist. "That could be very fiscally expensive and there are large human costs."
Cindy Paoletti, 58, understands those costs. Laid off from her job as a bookkeeper in J.P. Morgan Chase & Co.'s operations center in December 2007, she used a severance package to pay bills, and then began collecting $330 a week in unemployment benefits. She has exhausted her 99 weeks of benefits, and still can't find a job. Employers "just don't want to hire anybody in our age group," she says.
For now, she's budgeting the $2,000 left over from her late husband's life insurance policy.
"Unemployment benefits do not pay the bills," she says. "The people that I know that have been unemployed are searching every single day."
Write to Sara Murray at sara.murray@wsj.com