Unemployment Benefits: Not So Beneficial After All


People receiving unemployment benefits are more likely to report deteriorating financial conditions than those who don't, according to a new study by Rutgers University.

The survey, which spent two years tracking 675 people who lost their jobs in the Great Recession, found that 62 percent of unemployed respondents who did not receive unemployment benefits thought they were financially worse off, versus 76 percent of those who did receive benefits. Similarly, among those who were able to find jobs after their initial unemployment, only 32 percent of those who didn't receive benefits saw themselves in a worse financial place, versus 50 percent of those who did receive benefits.

A few tasty morsels from the paper:

Those who did not receive UI [Unemployment Insurance] were more likely to obtain a job within less than a year. Among those who had exhausted their unemployment benefits before getting another, most took more than a year.

Among the reemployed, just over half took a cut in pay. UI recipients were twice as likely to experience lower pay as those who did not receive UI benefits (59 percent versus 32 percent) And 64 percent of exhaustees said they were forced to take a pay cut in order to find new full-time employment.

Carl Van Horn, director of the John J. Heldrich Center for Workforce Development, which conducted the study, told Politico:

The government is not really providing a lot of help to the vast majority of the long-term unemployed.

Of course, the study doesn't establish causality between receiving UI and being worse off financially. Demographic factors could possibly explain the differences in success between UI recipients and non-recipients; effectively targeted unemployment benefits would favor recipients less likely to succeed on their own. The point is that the benefits aren't working, as Van Horn points out. And it doesn't take an overdose of common sense to see why. As Reason keeps saying: Attaching incentives to unemployment encourages people to remain unemployed (surprise!) And despite the government's best efforts to extend the free ride indefinitely, eventually the money will run out.

Read Reason's November 2011 issue, Get a Job!