Feb
26th
Thu
26th
One iron-clad rule of economics is that whenever you subsidize something you get more of it, so increasing unemployment benefits increases the amount of unemployment. There really is not another side to this, as in the more well-known minimum wage debate. For example, Bruce Meyer (“Unemployment insurance and Unemployment Spells”) found that higher benefits reduce the probability that insured unemployed workers will leave unemployment. He did this by measuring the probability is measured as a ratio of newly employed workers at the end of the week to those unemployed at the beginning of the week. He finds a 10% increase in the benefits decreases this probability by 5.3%. A paper by Stephen Nickell found that looking at US and Europe from 1983-96, those 8 out of 15 countries with an unemployment rate 120% of the US had relatively generous unemployment benefits. He notes that generous unemployment benefits decreases the willingness of the unemployed to find employment, and increasing the duration of the entitlement increases long-term unemployment. In sum, raise unemployment benefits, expect a higher unemployment rate.
