December 17, 2003
Economists have isolated the effects of extended unemployment benefits. Since many workers wait until their benefits are almost exhausted before taking a new job, the effect of extending benefits beyond 26 weeks simply extends the date when they have to take a job. One estimate concluded that for each week benefits are extended, the average duration of unemployment increases by about a day, says Bruce Bartlett.
Forcing a worker to take a job that he may not want may seem cruel, but the alternative can be worse. In Europe, every country has unemployment benefits more generous than they are here:
- It is not uncommon for benefits to replace 80 percent to 90 percent of gross wages, compared to 50 percent to 70 percent in the United States.
- Standard unemployment benefits in Europe typically last for a year, with a number of countries allowing people to receive them for up to 5 years; in Belgium, they never lose benefits.
- In Belgium the current unemployment rate is 11.6 percent.
- Italy, Germany and France all have rates over 9 percent.
- Europe as a whole has an unemployment rate of 8.5 percent, compared with 5.9 percent here.
Thus, ironically, elimination of extended unemployment benefits will almost certainly reduce the unemployment rate, explains Bartlett. The House Ways and Means Committee estimates that it will bring the rate down by half of a percent below what it would be if extended benefits remain in place. The Council of Economic Advisers estimates 0.3 percent.
Source: Bruce Bartlett, "Unemployment Benefits," National Center for Policy Analysis, December 15, 2003.
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