Kudos to David Henderson for using his space on Forbes.com to point out that the federal government's decision to extend unemployment benefits has unintended consequences. Namely, that it boosts the unemployment rate by as much as 0.4%.
The issue is two-fold: first, as Henderson aptly notes, if people are paid unemployment benefits longer, it provides them with incentive to stay on the rolls until they find a "more ideal" job; and because it prevents some from leaving the workforce entirely. The longer the benefits are extended, the greater the impact. Just ask Europe,
According to a 1990 article in the Journal of Public Economicsauthored by economists Lawrence Katz of Harvard and Bruce Meyer of Northwestern University, who was chief economist in President Clinton's Labor Department, a 13-week extension of unemployment benefits from 1978 to 1983 added 2.2 weeks to the average duration of unemployment for recipients, raising it from 16.2 weeks to 18.4 weeks. This may sound small, but it translates into a noticeable increase in the overall unemployment rate....[snip]
Most European countries have unemployment benefits that last much longer than ours. In France, for example, people under age 50 can receive benefits for as long as 23 months and those over age 50 but under age 57 can get benefits for three years. That's one main reason that European countries' unemployment rates, and especially their long-term unemployment rates, are much higher than ours.
We don't note this to accuse the unemployed of being lazy, or even to necessarily say that the costs outweigh the benefits. However, if we are going to have an adult conversation about ways to improve the national economy, then our leaders need to shed the pathological denial that their actions will have negative consequences.
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