Do unemployment benefits disengage people from work?
In early 2020 COVID-19 cases skyrocketed. The economy slowed down and unemployment soared. For 12 straight weeks over a million people filed for unemployment benefits in the US. These benefits proved to be lifelines during the tough times. However there were other, less desirable outcomes as well. Some studies showed that benefit payments had an adverse effect on the motivation to work. Here is a quick look at various viewpoints surrounding this discussion.
Unemployment benefits in the US
Unemployment benefits have been around for a while. The Supplemental Appropriations Act aimed to mitigate the effects of the 2008 recession. Following the coronavirus crisis millions found themselves out of work. Millions more had their work hours and pay reduced. The US government provides temporary assistance to all its citizens and immigrant workers who have valid work authorization and filed for unemployment benefits. The benefits are paid for up to 26 weeks. In many states applicants can get compensation amounting to half their pre-layoff earnings. Since the start of the outbreak over 44.2 million Americans have received unemployment payments.
Benefit payouts are meant to tide workers over while they seek out new employment. In March, 2020 the US government authorized the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the act adults with pre-outbreak incomes of less than $75,000 were entitled to $1,200 in unemployment insurance checks. More recently President Biden authorized the ‘American Rescue Plan’ in December 2020. This plan will pay an additional $300 as weekly relief to each adult up to March 14, 2021.
Millions of migrants live and work in the US. They regularly send money online as remittances, which are often the only sources of income for their families back home. Unemployment benefits give much needed assistance to individuals and families in need. Unfortunately, as data shows, benefits also create incentives to cheat the system and stay out of work. In 2020 CNBC reported some disparities in unemployment caused by COVID-19 relief packages and unemployment adjustments. In the CARES Act some workers received benefit payments worth nearly twice their pre-crisis salaries. A study by the Center for Research on the Wisconsin Economy showed that 40% of workers generally earn more from unemployment than they do while working in a steady job.
There is substantial evidence to show that in the past many Americans opted to remain on unemployment benefits longer than they should have. This behavior strains a system which is already stretched. It can result in reducing or excluding aid to those who legitimately need it.
The US News & World Report 2012 gave a compelling analysis of how unemployment claims may be discouraging people from actively participating in the job market. It cites that potential workers intentionally sideline themselves from work even after they transition out of unemployment since they “earn more from not working”. Similarly, many of those who got back to their jobs after receiving benefit payments for many months showed poor social skills. They displayed poor work ethic and unrealistic expectations. As a result many got fired soon after.
Some studies suggest that unemployment breeds laziness. Others claim that unemployment is purely involuntary, because the jobs aren’t there in the first place. There is also the view that benefit payments facilitate social distancing and other restrictive measures. Director of the Institute for Research on Labor and Employment at the University of California, Berkeley Jesse Rothstein echoed this sentiment. In response to a recent increase in benefit payments she said, “it may not be the worst idea to keep people at home.”
Forbes highlighted the limitation of the private sector to provide jobs for every willing and able-bodied worker in the system. Educating people may increase the number of hirable workers in the job market; but it does not necessarily increase the number of jobs. Avenues for education and vocational skills training are available. Yet, there are hundreds of thousands who are unemployed despite their qualifications and desire to work.
Unemployment is a global problem. Millions of adults worldwide are out of work for reasons beyond their control. The system of unemployment benefits which was instituted in the US Social Security Act in 1935 and backed by the Supreme Court in 1937 has provided crucial aid to many genuinely needy Americans. It is however, not a perfect system. It continues to be studied and evolved. According to the National Academy of Social Insurance, the system of unemployment benefits is not the best solution to the problem. Still, it is a preferable alternative to joblessness and its many negative effects.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.