After 99 weeks of unemployment benefit extensions, Congress has voted ‘no’ to extending the program for a further 13 weeks, adding $12.5 billion to the nation’s debt. Instead, legislators suggest that unspent stimulus money be dedicated to financing any continued benefits for the unemployed.
While some may think the measure is unduly harsh, consider one of the well-known moral hazard results of public unemployment benefits: the longer they are awarded, the longer the time it takes for people to look for a job. A recent paper by the Institute for the Study of Labor in Bonn shows that Chileans who rely on private Unemployment Insurance Savings Accounts (UISAs) are more likely to find a job sooner, than those who rely on Chile’s publicly-funded social insurance fund.
Hopefully, the doublespeak that unemployment benefits create jobs will also be put to rest. What Congress should instead consider is encouraging job creation via tax cuts, spending and regulatory reform.
And also, it’s important to get unemployment insurance right. Congress should move to institute a more stable safety net for individuals who experience unemployment. Workers should be given individual savings accounts, funded by an employee/employer contribution. The savings can be used during periods of unemployment or used in retirement.