Unemployment Insurance

The idea that ‘if you subsidize something you get more of it’ seems as good a law in economics as you can find. Robert Barro argues today in the WSJ that since we moved unemployment insurance from 26 weeks of ‘temporary’ relief, to now 99 weeks, we have exacerbated unemployment problem, and now are approaching the European base rate. Isn’t a more ‘European style’ economy what Obama wanted? Alas, when we create an American Europe, we don’t get to choose what parts transfer.

Barro notes that increasing unemployment insurance lowers the probability a job seeker will accept a new job, and the economy is always creating and destroying a lot of jobs:

For example, the Bureau of Labor Statistics reports that, near the worst of the recession in March 2009, 3.9 million people were hired and 4.7 million were separated from jobs. This net loss of 800,000 jobs in one month indicates a very weak economy—but nevertheless one in which 3.9 million people were hired. A program that reduced incentives for people to search for and accept jobs could surely matter a lot here.

But, for the other side, the issue is rather simple. If we did not give people unemployment insurance, they would die. Here’s American Prospect columnist Tim Fernholz explaining his utter disdain for Jim Bunning, the congressman who tried to block increasing unemployment insurance without funding it first.

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About Eric Falkenstein 136 Articles

Eric Falkenstein is an economist who specializes in quantitative issues in finance: risk management, long/short equity investing, default modeling, etc.

Eric received his Ph.D. in Economics from Northwestern University , 1994 and his B.A. in Economics from Washington University in St. Louis, 1987

He is the author of the 2009 book Finding Alpha.

Visit: Eric Falkenstein's Website

1 Comment on Unemployment Insurance

  1. what about the 75% of unemployed that get no gov’t handouts? they don’t qualify for whatever reason. and why so much g.d. emphasis on unemployment insurance anyway?got news for u, most unemployed people don’t get squat!point is, even if every single person drawing unemployment benes got a job tommorow, you’d still have twenty five or thirty million unemployed

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