Do Jobless Benefits Hurt Or Help?


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This is a key debate that is covered in my Principles of Macroeconomics course.  Ben Leubsdorf of Wall Street Journal’s Real Time Economics cites two separate studies that suggest that extending unemployment insurance beyond twenty-six weeks caused the unemployment rate to rise up to 1.2 percent more.  They also qualify their findings by referring that this effect is stronger among higher educated workers.

Critics of extending jobless benefits will embrace these two studies and call for Congress to end extending unemployment insurance beyond 26 weeks because:

  • It causes people to slack on their job search because they have a safety net to delay reentering the labor force.
  • This effect was even present among higher educated workers, who conceivably would have an easier time finding a job than those with limited skills.

Supporters of extending jobless benefits will dismiss both studies and urge Congress to continue extending unemployment insurance beyond 26 weeks because:

  • Ignores the catastrophic effects of a financial crisis where firms were fighting for survival and not capable of taking on more payroll.
  • Neither study considered whether reentering the labor force quickly would result in underemployment where they find a job that is beneath their qualifications and skills.

If you believe that being out of work for an extended period of time will compromise the long-term job marketability of workers, then refusing to extend jobless benefits is the right course of action.  However, if you feel that the extended time is needed to find a job that matches their skills, then an extension remains necessary.

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