Extending Jobless Benefits May Prolong Unemployment

NCPA Research Shows Chilean System Works Better

DALLAS (January 6, 2003) -- The National Center for Policy Analysis (NCPA) says that extending unemployment benefits may actually prolong joblessness for an estimated 800,000 Americans whose already-extended benefits expired Sunday (www.ncpa.org/pub/ba426). President Bush and leaders from both political parties have promised to provide up to three months of additional jobless benefits, bringing the workers' total coverage to 52 weeks, one full year, of unemployment.

"The problem is people keep getting checks as long as they are out of work. As soon as they find a job, the benefits cease," said William B. Conerly, NCPA Senior Fellow and author of the brief analysis. Many academic studies show that more generous benefits and extended benefits tend to lengthen periods of unemployment.

  • Workers not eligible for jobless benefits find jobs twice as quickly as those receiving benefits.
  • Among those who are eligible, the likelihood that a worker will find a job more than doubles in the two weeks before benefits expire.

"With few exceptions, economic freedom and prosperity go hand in hand," said Herrick. "States with low taxes and limited government tend to grow faster than states where the opposite is true." While economic freedom is not the sole determinant of a state's wealth, the correlation is strong. For example:

"All of the research shows that when you pay people not to work, there is less work," said Conerly. "We need a system that rewards people for finding jobs rather than for remaining jobless."

Conerly said Chile has adopted a program of individual accounts for workers, which has worked extremely well (http://www.ncpa.org/pub/ba424/). Chilean workers and employers contribute to workers' individual accounts. During periods of unemployment, a worker may use funds from the account as a source of income. However, any funds remaining belong to the worker and can be withdrawn as cash during retirement. Since the funds belong to the worker, there is an incentive to find work quickly.

"In a dynamic economy, jobs are constantly being created and destroyed," Conerly said. "We need a system that makes it as painless as possible for workers to move from one job to the next."

William B. Conerly, Ph.D. is an economic consultant whose clients include the American Institute for Full Employment. He can be reached at bill@conerlyconsulting.com