Detrimental Effects of Extended Unemployment Compensation
Most every individual, family, and even the nation as a whole experience lean times and periods of great prosperity. During seasons when the economy is not doing well, unemployment rises, causing individuals and families to face unplanned financial hardship. President Franklin D. Roosevelt recognized the need for a temporary financial bridge for those facing the dilemma of lost income and led the way in establishing unemployment insurance in the 1930’s. The intent of temporary unemployment insurance was to provide a safety net benefit for individuals seeking a permanent income source. However, extended unemployment benefits also produce detrimental consequences for the unemployed worker.
Ensuring unemployed workers have access to sufficient finances to satisfy minimum daily needs is a noble endeavor. By providing this financial bridge, the unemployed have an opportunity to embark on a course to fiscal recovery. However, benefits should not compromise their purpose by diminishing the employment incentive of recipients, or causing other adverse effects.
According to Feldstein, the current system of unemployment benefits “. . . provides an incentive to inappropriately long durations of unemployment” (39). He goes on to say, “. . . it provides both employers and employees with the incentive to organize production in a way [that makes] casual and temporary jobs all too common” (39). In other words, oftentimes the current system encourages workers to stay unemployed. It also stimulates employers to create jobs, which are short term and financially inadequate, rather than permanent and lucrative in nature. By having a system, which encourages temporary employment, an unintended consequence of workers repeatedly dependent on unemployment compensation, rather than full-time employment is common.
One might wonder how an individual can survive with such a significant loss of income when subsisting on unemployment benefits. After all, a widely held view is that unemployment compensation usually provides only a small fraction of what the worker earns from normal full-time employment. While in some cases this may be true, it is a common misconception. When considering tax obligations and other deductions, transportation costs to and from work, and other work-related expenses, net take-home pay from unemployment often replaces a majority of lost income (Feldstein 39). It is not unusual for some recipients to actually net more income from unemployment, than from an actual paycheck, receiving up to 80% of their lost income in the form of unemployment compensation (Feldstein 40).
From a purely compensational standpoint, the question of whether one should work or draw unemployment as long as possible is not difficult to answer. The choice is to either spend numerous hours away from friends and family commuting to and from the workplace and another 40 or more hours laboring for the success of another, or stay...
