Collective Conscious

Some peo­ple want you to believe that unem­ploy­ment insur­ance is none of the government’s busi­ness. You can rat­tle off any num­ber of “clas­sic” eco­nomic argu­ments that this is so: insur­ance should be pro­vided by the pri­vate sec­tor, UI cre­ates a work dis­in­cen­tive, it’s costly to the pub­lic sec­tor, etc. But when it comes to social safety nets like this one, the facts should tell the story.

Let’s exam­ine the most impor­tant claim, and the one repeated most often by oppo­nents of unem­ploy­ment insur­ance: “UI gives poten­tial work­ers a rea­son not to work.” Here’s the data pre­sented by Arthur Laf­fer in sup­port of that conclusion:

Look at the data! It’s more than clear that the aver­age UI pay­ment (light blue) lags the unem­ploy­ment rate (dark blue). What this means is that the increase in pay­ments is caused by the increase in unem­ploy­ment, and not the other way around.

Of course, these claims aren’t entirely base­less: eco­nomic logic is good stuff and the first thing they teach you there is that incen­tives do mat­ter. So I searched for a closer look at the exact impact of unem­ploy­ment insur­ance on length of unem­ploy­ment. Sure enough, there is a small dis­in­cen­tive effect — on aver­age, 10 extra days of unem­ploy­ment for an addi­tional 10 weeks of benefits.

That, to me, is hardly seri­ous enough to make the pol­icy a no-​​go, espe­cially since UI ben­e­fits are the sec­ond most pow­er­ful form of stim­u­lus spend­ing avail­able to the gov­ern­ment (accord­ing, at least, to John McCain’s for­mer eco­nomic advi­sor), adding 160% of their cost to GDP.

Enough facts yet?

(Photo: isto­le­thetv)