Unemployment Benefits Create Disincentive for Work

March 30, 2004

Congress is considering further extending unemployment benefits under the Temporary Extended Unemployment Compensation (TEUC), which expired in December 2003.

Unemployment insurance was originally designed for short-term use for economic and income stabilization. Unfortunately it costs state and federal governments plenty while increasing incentives not to work, says Paul Kersey (Heritage Foundation):

  • The TEUC cost the federal government about $900 million monthly; extending benefits for another six months would likely cost some $5 billion.
  • Workers are more likely to find work the week before their unemployment benefits run out than at any other time during unemployment.
  • Workers who receive unemployment benefits are more likely to demand higher wages before accepting a new job.

National unemployment is currently at 5.6 percent, declining from 6.3 percent in June. According Kersey, extending unemployment benefits at a time when the economy is picking up would be expensive and counter-productive.

Source: Paul Kersey, "Emergency Unemployment Benefits Not Needed as Economy Recovers," Executive Memorandum 914, February 13, 2004, Heritage Foundation.

 

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