Government Benefits Encourage Unemployment

January 24, 2013

Unlike the first 250 years of the U.S. economy, which grew at an annualized rate of about 3.5 percent a year, the first dozen years of this century will have an estimated growth rate of about 1.81 percent, says Richard Vedder, an adjunct scholar with the American Enterprise Institute.

The slowdown in growth is due to a shrinking percentage of Americans in the workforce today.

  • In 2000, there were eight more workers for every 100 working-age Americans than in 1960.
  • Since 2000, more than two-thirds of this increase has disappeared due in large part to government benefits becoming more generous.

Americans fleeing the workforce has a real impact on the economy -- 14 million fewer people work today than would have if the 2000 employment levels had continued. Instead of seeking employment, many Americans are choosing to take advantage of a multitude of government policies.

  • Thirty million more Americans receive food stamps today than in 2000 and the average benefit has risen over the past three years by $23.
  • The number of Americans receiving Social Security disability payments has risen drastically -- more than doubling in the 15 year period from 1990 to 2005, despite a decrease in the most dangerous industrial and mining jobs.
  • While in 2000 fewer than 3.9 million Americans attended college on Pell Grants, an estimated 9.7 million received the grants in 2011, though many four-year college graduates work in jobs the Labor Department has declared do not require a college education.
  • The extension of unemployment benefits, now far longer than the traditional 26 week length, means that many Americans feel less of a rush to return to the workforce after losing a job.
  • Higher marginal tax rates also mean workers take home less of their pay for the same amount of effort they once put in.

If government spending is reigned in and these benefits are trimmed back, Americans will have less of an incentive to stay home and might seek out employment. As long as these overly generous benefits persist, slow growth can be expected.

Source: Richard Vedder, "The Wages of Unemployment," Wall Street Journal, January 15, 2013.

 

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