NCPA - National Center for Policy Analysis


June 22, 2004

Extending temporary unemployment insurance (UI) benefits is a bad idea because it would increase spending by about $1 billion per month and increase the average duration of unemployment for those who qualify, says the Heritage Foundation.

Working with Department of Labor data covering the employment histories of young men in the late 1970s and 1980s, Mark Gritz and Thomas MaCurdy found:

  • The mean duration of unemployment was 14.6 weeks for those who received unemployment insurance benefits versus 7.6 weeks for workers who were eligible but did not file a claim.
  • The mean duration of unemployment was 6.9 weeks for those who were ineligible for unemployment benefits.

Research has also shown that a UI recipient's likelihood of finding a job rises dramatically as exhaustion of benefits nears. Economists Lawrence Katz of Harvard University and Bruce Meyer of Northwestern University found that an unemployed person's likelihood of finding work tapered off in the early weeks but climbed from the 20th to the 26th week as exhaustion drew near.

According to Heritage, even in the healthiest of times, some workers will lose their jobs as new industries and methods make old facilities obsolete. The cure for this dislocation is faster growth in new sectors -- something only private markets can meaningfully provide.

Given the demonstrated strengthening of the labor market, the best option, says Heritage, is for Congress to do nothing. Alternatively, government could explore the privatization of UI. Through personalized UI accounts, individuals would have some control over their unemployment insurance and allow them access to funds that they do not use, thus encouraging a speedier return to work.

Source: Paul Kersey and Tim Kane, "The Wrong Time to Extend Unemployment Insurance," Heritage Foundation, Backgrounder No. 1754, May 2004.


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